[Part 2 - from #562 to # 1007] ---------------------------------------------------------------------------- NEP: New Economics Papers All new papers ---------------------------------------------------------------------------- Edited by: Marco Novarese http://ideas.repec.org/e/pno2.html Universita del Piemonte Orientale Date: 2005-04-16 Papers: 1007 This document is in the public domain, feel free to circulate it. +++++++++++++++++++++++++++++++++++++++++++++++++++ + Access to full-text contents may be restricted. + +++++++++++++++++++++++++++++++++++++++++++++++++++ 562. SCREENING FOR CANCER AND MARKET STRUCTURE:A MULTILEVEL ANALYSIS FOR MAMMOGRAM AND PAP-SMEAR UTILIZATION IN THE U.S. Yavuz Yasar (University of Denver) This paper investigates the relationship between health care market structure and utilization of preventive care services, namely mammogram and Papanicolaou (Pap-smear) screening. In addition to their life saving aspects, it is always believed that preventive health care services are important due to their cost- effectiveness which would prevail under managed competition. Yet, the nature of managed competition has been changing as a result of the backlash against it since the mid-1990s. We have yet to provide a clear answer to the question of how market structure affects the utilization of preventive care in general, and how the latest changes in health care market have been affecting it. These are the primary research questions of the paper. These research questions are answered by employing a new methodology that has not been used before. A multilevel modeling technique is employed to study the impact of changes in the structure of health care market on the utilization of mammogram and Pap-smear tests. In addition, an unusual data source, insurance claims data, rather than surveys or discharge data, is used in this study. Keywords: Mammogram, Pap-Smear, Utilization, Health Care Market, Multilevel Analysis. JEL: I Date: 2005-03-16 URL: http://d.repec.org/n?u=RePEc:wpa:wuwphe:0503002&r=all 563. Hidden Teacher Effort in Educational Production: Monitoring vs. Merit Pay Christian Jaag (University of St. Gallen Institute of Public Finance & Fiscal Law) This paper deals with the optimality of teacher incentive contracts in the presence of costly or limited government resources. It considers educational production under asymmetric information as a function of teacher effort and class size. In the presence of costly government resources and convex effort costs, teacher monitoring - which is wasteful in principle - may be superior to merit pay in order to induce second-best teacher effort; optimum class size is not affected by informational deficiencies. If the government budget is exogenously fixed, optimum teacher effort may not be affordable, which is shown to make the case for monitoring activity instead of incentive pay even stronger. Keywords: Education, Moral Hazard, Monitoring, Merit Pay, Incentives, Teachers JEL: I21 I28 D82 Date: 2005-03-18 URL: http://d.repec.org/n?u=RePEc:wpa:wuwphe:0503003&r=all 564. CAN LONG HORIZON DATA BEAT RANDOM WALK UNDER ENGEL-WEST EXPLANATION? Jian Wang (University of Wisconsin, Madison) Engel and West (2004a) provide an explanation to reconcile the random walk behavior of exchange rate and linear present value asset pricing models. In this paper, we study the long horizon property of exchange rate under Engel-West explanation. It is found that the long horizon data can not significantly improve our chance of beating random walk. This result is consistent with recent empirical studies on the long horizon exchange rate. Under E-W explanation, the change of exchange rate can be more serially correlated in the long horizon data, but this change in most cases is only marginal. Depending on the persistence of change in fundamentals, two patterns may exist between the autocorrelation of exchange rate change and the time horizon. Both of these two patterns are found existing in the real data of exchange rates. These results support E-W explanation for exchange rate puzzle. Keywords: Foreign exchange rate, present-value models, exchange rate and fundamentals, random walk JEL: F31 F41 G12 G15 Date: 2005-01-25 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpif:0501002&r=all 565. Investigating Non-Linearities in the Relationship Between Real Exchange Rate Volatility and Trade Olivier Bonroy (CREA, Laval University) Jean-Philippe Gervais (CREA, Laval University) Bruno Larue (CREA, Laval University) Production and marketing lags in agri-food supply chains force competitive primary producers and food processors to commit to output targets before prices and exchange rates are realized. A theoretical model with one processor and many price-taking primary producers is developed to show that an increase in the volatility of the export price generally increases exports under risk neutrality. Furthermore, relaxing the assumption that the processing firm is risk neutral introduces non- linearities in the relationship between exports and export price volatility. This relationship is empirically investigated using the flexible non-linear inference framework developed by Hamilton (2001). The theoretical model provides the foundation for empirical bilateral export equations for Canadian pork exports to the U.S. and Japan. The empirical investigation supports the hypothesis that export price volatility has statistically significant non-linear effects on Canadian pork exports. Keywords: Exchange rate volatility, non-linear flexible inference, production lags, pork exports JEL: Q17 C32 Date: 2005-01-27 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpif:0501003&r=all 566. Exchange rates and employment in Turkish manufacturing Alpay Filiztekin (Sabanci University) This paper investigates the effects of exchange rate fluctuations on Turkish manufacturing employment and wages using data for a panel of manufacturing industries over the period 1981- 1999. The net effect of depreciations are found to be negative for both employment and wages, though the effects on wages are more pronounced. The negative effect of high dependency of Turkish manufacturing industries on foreign inputs overcomes the positive effect of depreciations on competitiveness. Keywords: exchange rates, labor market, manufacturing, Turkey JEL: F3 F4 Date: 2005-01-28 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpif:0501004&r=all 567. IMF Bailouts and Moral Hazard Jong-Wha Lee (Korea University) Kwanho Shin (Korea University) This paper empirically investigates the extent of investor moral hazard associated with IMF bailouts by analyzing the responses of sovereign bond spreads to the changes in the perceived probability of IMF bailouts of countries undergoing financial crisis. We do not find strong evidence that the extent of investor moral hazard changed after the non-bailout of Russia in August 1998 that signaled a modification to IMF intervention policy. In contrast, we find evidence that investor moral hazard is intensified for those countries that have stronger political connections to the IMF and that are thereby more likely to be bailed out by the IMF. This pattern prevailed even after the Russian crisis. Keywords: IMF, moral hazard, sovereign bond spreads, international financial architecture JEL: F33 F34 Date: 2005-01-28 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpif:0501005&r=all 568. Consistency versus credibility: how do countries choose their exchange rate regime? Fabrizio Carmignani (United Nations Economic Commission for Europe) Emilio Colombo (University of Milan - Bicocca) Patrizio Tirelli (University of Milan - Bicocca) The empirical distinction between de facto and de jure exchange rate regimes raises a number of interesting questions. Which factors may induce a de facto peg? Why do countries enforce a peg but do not announce it? Why do countries 'break their promises'? In this paper we show that a stable socio-political and an efficient political decision- making process are a necessary prerequisite for choosing a peg and sticking to it. Whenever a country is implementing a de facto peg the same factors signal that the peg is more likely to be announced. Finally these factors explain why regime choices are not reversed. Keywords: Exchange Rate regime Choice Exchange Rate Regime Classification Political Systems JEL: F3 F4 Date: 2005-02-04 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpif:0502001&r=all 569. Indirect and Compounded Effects of External Crises on Growth in Emerging Markets Martin Melecky (School of Economics, University of New South Wales) An attempt to quantify possible negative effects of external crises in emerging market economies is made in this paper. The direct and indirect effects of the external crises, here sudden stops in capital flows and currency crises, are estimated and compounded into composite overall effects. In addition, an alternative approach for the analysis of the dynamics is introduced. I find that a current account reversal has a negative effect, both direct and indirect, on economic growth introducing a slowdown exceeding two percentage points in the current year. On the other hand, the direct effect of currency crises is insignificant and unlike in the case of the reversal the indirect effect dominates and delivers a negative overall effect of 1.8 percentage points. The time necessary for the adjustment of actual growth back to its equilibrium rate is roughly 1.8 years after the current account reversal and 1.6 years after the currency crisis. The corresponding cumulative losses are four and 3.3 percentage points for the reversal and the currency crisis, respectively. Keywords: External Crises, Economic Growth, Emerging Market Economies, Panel Data. JEL: C23 F32 O40 O52 Date: 2005-02-04 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpif:0502002&r=all 570. Anticipations, External Crises and Growth Cycles in Emerging Market Countries Martin Melecky (University of New South Wales, School of Economics) This paper attempts to carry out a study of relative importance of anticipated and unanticipated external crises for the dynamics of economic growth. The estimations are carried out within a two equation system capturing the possibility of a common shock to external crises and growth. The effect of current-account reversals on growth appears to be similar across considered regions, however, one cannot draw any general conclusion about the importance of the unanticipated component of the reversals for growth. The effect of currency crises appears to vary across the regions of Central and Eastern Europe, Latin America and Asia. The unanticipated component of the currency crises is significant only in CEE. The unanticipated component in the effect of the joint crisis on growth appears to be important in Latin America, and with lower precision also in CEE and Asia. Keywords: Anticipations, External Crises, Growth Cycle, Panel Data. JEL: E32 F31 F32 O52 O53 O54 Date: 2005-02-04 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpif:0502003&r=all 571. The Impact of Current Account Reversals on Growth in Central and Eastern Europe Martin Melecky (School of Economics, University of New South Wales) According to economic theory, the capital inflows reversal – so-called sudden stop – has a significant negative effect on economic growth. This paper investigates the direct impact of current account reversals on growth in Central and Eastern European countries. Two steps to conduct the analysis are applied. In the first step the standard growth equation is estimated when including the current account reversal impulse dummy. I find that after a current account reversal the growth rate declines by 1.10 percentage points in the current year. The subsequent analysis of the adjustment dynamics builds upon the notion of convergence. The unconditional and conditional convergence coefficients are found to be - 0.47 and -0.52, respectively. This implies that the consequences of the reversal are likely eliminated after 3.3 years when the actual growth rate is back at its equilibrium level, ceteris paribus. Finally, the cumulative loss associated with a sudden stop in capital flows is about 2.3 percentage points. One may infer that Central and Eastern European countries are relatively flexible in terms of adjustment and reallocation of resources given the findings in similar literature examining either a more general sample or concentrating on rather different regions. Keywords: Current Account Reversals, Economic Growth, Emerging Market Economies, Adjustment Dynamics, Panel Data JEL: F32 C23 O40 O52 Date: 2005-02-04 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpif:0502004&r=all 572. Agricultural Protectionism: Debt Problems and the Doha Round Julio J. Nogues (Universidad Di Tella) Through financial channels, agricultural protectionism imposes costs on efficient producers that are higher than those associated with negative allocative effects and export losses usually estimated. The link between protectionism and finance has a direct relationship with the WTO Marrakech Agreement of establishing coherence between international trade and financial matters. Here, I call attention to the fact that for efficient agricultural exporters there is little if any coherence between the trading system and the international financial system that they face. I also present some numbers on the export losses from agricultural protectionism; describe the channels through which this protectionism increases financial costs; and analyze dynamic and poverty effects. Keywords: WTO, Coherence Agricultural Protectionism, Debt Problems JEL: F3 F4 Date: 2005-02-08 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpif:0502005&r=all 573. Currency preferences and the Australian dollar Geoffrey Kingston (School of Economics, University of New South Wales) Martin Melecky (School of Economics, University of New South Wales) We investigate the theory and empirics of currency substitution and currency complementarity. Analytical tractability is facilitated by focussing on a small currency. Data spanning 1985 to the turn of the century contain evidence of the Australian dollar’s substitution for the mark and complementarity with the yen, consistent with our theory that international variables will in general affect the demand for domestic money. Our theory also predicts third-currency effects, and the data reveal several of these. For example, rises in the US Federal Funds rate were associated with depreciations of the Australian dollar against the yen, controlling for the spread between interest rates in Australia and Japan. Keywords: Atemporally non-separable preferences; Money demand; Cash in advance; Third-currency effects; Uncovered Interest Parity JEL: E41 F31 F36 Date: 2005-02-08 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpif:0502006&r=all 574. The Development of Financial Markets in Poland Lucjan T Orlowski This project analyzing the development of Polish financial markets sponsored by the USAID grant was aimed at examining selected problems of the banking system and financial markets in Poland. The main criterion for selection of these problems was their potential usefulness for policy-makers at the present stage of the economic transformation. The studies within the project address the issues that require special attention of policy- makers in their efforts to design future stages of the economic transformation and to formulate a program of effective preparations for the EU accession. The topics examined include: the advancement of risk management in the banking system, the economic and legal aspects of capital account liberalization, contagion effects of world financial crises, and sensitivity of financial markets to exchange rate policies. The studies find visible improvements in the methodology of risk management in the banking system in Poland and in the institutional framework of financial markets. It is further suggested that a larger participation of foreign, more xperienced banks would improve efficiency of Poland's financial institutions. It remains debatable whether the banks ought to evolve in the directions of universal or specialized nstitutions. The financial system is prone to contagion effects of external financial crises as documented by the impact of the Asian and the Russian crisis episodes. Several measures aimed at developing an effective cushion against potential contagion effects of financial crisis are proposed. They include: an effective system of bank monitoring and supervision, a lower reliance on debt in relation to equity, a low (less than a multiple of three) ratio of M2 money to foreign exchange reserves, a higher degree of transparency of financial institutions, more transparent fiscal and monetary policies, and a significant increase in national savings. The advancement of capital account liberalization shall not be restrained by taxes on foreign exchange transactions or by similar measures aimed at containing capital flows. Capital controls could be devastating to still very fragile and volatile Polish financial markets. JEL: F3 F4 Date: 2005-02-11 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpif:0502007&r=all 575. Recent Developments in International Currency Derivatives Market: Implications for Poland Lucjan T. Orlowski (Sacred Heart University) This paper examines currency derivatives that have emerged in international financial markets over the past two years, emphasizing the departures of spot exchange rate movements from the macroeconomic fundamentals among the “triad” currencies: the U.S. Dollar (USD), the German Mark (DM), and the Japanese Yen YE). Sensitivity of exchange rates to key macroeconomic variables (differentials in interest rates, income and inflation) is tested for the “triad” currencies in two periods: 1991- 1993 and 1994-1995. In the latter period, some considerable misalignments between forward rates and changes in spot exchange rates are observed. This is contrary to the historical evidence of the validity of the so-called “unbiased forward rate hypothesis” claiming that forward rates are the best predictor of adjustments of spot rates (Levich, 1976). It is argued that the recently observed failure of the relationship between forward rates and lagged spot rates has contributed to significant losses of investors and speculators in international currency derivative markets. The examination of these relationships and the recent empirical developments provides useful lessons for the transition economies of Central and Eastern Europe in their attempts to construct viable modern financial markets. This study limits the scope of recommendations for developing financial markets to the conditions of Poland. It assumes that currency-based derivative transactions may play a pivotal role in reducing systemic risk of external trade and financial contracts in the Polish economy presently undergoing considerable structural adjustments aimed at promoting export and net capital inflows. It further argues that an introduction of financial derivatives in Poland shall be preceded by a construction of sound underlying security markets. A stable currency accompanied by low inflation is necessary prerequisites for a successful functioning of currency-based derivatives. JEL: F31 P20 Date: 2005-02-12 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpif:0502008&r=all 576. An Alternative Test of Purchasing Power Parity Frederick H. Wallace (Prairie View A&M University) Gary L. Shelley (East Tennessee State University) The long-horizon approach of Fisher and Seater (1993) is applied to the data developed by Taylor (2002) to test for purchasing power parity (PPP). Even after accounting for the low power of the test, the evidence is generally supportive of PPP. Keywords: Purchasing power parity, Fisher-Seater test JEL: F3 F4 Date: 2005-02-14 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpif:0502009&r=all 577. Does Asian foreign exchange intervention really hurt Europe? Lessons from a three-asset portfolio model Sebastian Dullien (Financial Times Deutschland) In the current policy debate, it is often argued that foreign exchange interventions by Asian central banks lead to an excessive appreciation of the euro against the dollar. This paper shows that in a three asset portfolio model the opposite holds: Interventions by Japan's central bank strenghten the dollar against the euro. Keywords: China, Japan, foreign exchange interventions, portfolio model JEL: F31 Date: 2005-02-28 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpif:0502010&r=all 578. The Changing Role of the Yen/Dollar Exchange Rate for Japanese Monetary Policy Gunther Schnabl (Tuebingen University) Christian Danne (Tuebingen University) This paper studies the role of the yen/dollar exchange rate in the Bank of Japan’s monetary policy reaction function. In contrast to prior estimations of reaction functions based on the Taylor-rule, we allow for regime shifts by estimating rolling coefficients from January 1974 to March 1999. The results show a temporary impact of the exchange rate on monetary policy around 1978/79 and a persistently increasing impact of the yen/dollar exchange rate after 1986. The ris ing importance of the yen/dollar exchange rate for Japanese monetary policy is in line with increasing efforts to stabilize the yen/dollar exchange rate by foreign exchange intervention after March 1999, when the nominal interest rate reached the zero boundary. Keywords: Japan, Monetary Policy Reaction Function, Bank of Japan, Interest Rate Rules, Exchange Rates, Taylor Rule, GMM. JEL: E43 E52 E58 F41 Date: 2005-03-04 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpif:0503001&r=all 579. CAPITAL ACCOUNT OPENNESS AND INFLATION: A PANEL DATA STUDY FOR THE 1990s Abhijit Sen Gupta (University of Califonia, Santa Cruz) This paper aims to look at the relationship between capital account openness and inflation in the 1990s. It argues that widespread capital account liberalization during the early 1990s appears to have contributed to the world-wide disinflation observed during that decade. The paper attempts to provide a theoretical and empirical evidence for a strong negative link between capital account liberalization and disinflation. Capital account openness appears to discipline monetary authorities, or to help them convince the private sector that they will be more disciplined in the future. Keywords: Capital Account, Openness and Inflation JEL: F36 F41 E32 Date: 2005-03-10 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpif:0503002&r=all 580. The Effects of the Euro-Conversion on Prices and Price Perceptions Giovanni Mastrobuoni (Princeton University) Despite the expectations of economists that the euro changeover would have no effect on prices, I show that European consumers perceive the contrary. The data indicate that consumers based their perceptions about inflation on goods that are frequently purchased. I use this insight to develop and estimate a model of imperfect information that explains why these goods were subject to higher price growth after the changeover. The data indicate that Spain, Italy and France show a stronger euro- effect on prices. The data also suggest that this price growth is correlated with consumers' ability to adapt to the new currency. Keywords: euro, currency changeover, imperfect information, search costs, price setting JEL: D83 F33 L11 Date: 2005-03-10 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpif:0503003&r=all 581. Exchange rate exposure of stock returns at firm level Gamini Premaratne (NUS) Prabhath Jayasinghe (NUS) The use of conventional augmented CAPM specification in estimating the exchange rate exposure may result in less reliable estimates for, at least, two reasons. First, it does not take into account a few important stylized facts associated with financial time series. Second, one cannot estimate the total impact of the exchange rate changes on stock returns as a single coefficient with it and for this reason it does not help us analyze the reinforcing or offsetting interactions between direct and indirect exchange rate exposure effects. In this paper, we suggest an orthogonalized GJR-GARCH-t version of augmented CAPM that simultaneously addresses the above issues. Our findings have important implications for hedging and investment decision making. Keywords: Exchange rate exposure, GARCH, t distribution, Asymmetric volatility JEL: F3 F23 F31 G15 Date: 2005-03-11 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpif:0503004&r=all 582. THE ROLE OF GLOBAL RISK AVERSION IN EXPLAINING LATIN AMERICAN SOVEREIGN SPREADS ALICIA GARCIA HERRERO (BANCO DE ESPANA) ALVARO ORTIZ (REPSOL-YPF) This paper assesses empirically whether global risk aversion ( GRA) and some if its determinants (US economic growth and the US long term interest rates) explain developments in Latin American sovereign spreads. We find that GRA is significant and positively related to Latin American sovereign spreads and that its impact varies across countries and over time. Chile, with a lower sovereign risk, is relatively more affected. The opposite is true for Argentina, Ecuador and Venezuela. In addition, the influence of GRA on spreads has risen since the Enron scandal. Finally, both an increase in US economic growth and US long term interest rates are found to reduce spreads while the opposite is true for US short-term interest rates. Keywords: global risk aversion, sovereign spreads, Latin America JEL: F3 F34 E43 Date: 2005-03-17 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpif:0503005&r=all 583. Are Exchange Rates Really Random Walks? Some Evidence Robust to Parameter Instability Barbara Rossi (Duke University) Many authors have documented that it is challenging to explain exchange rate fluctuations with macroeconomic fundamentals: a random walk forecasts future exchange rates better than existing macroeconomic models. This paper applies newly developed tests for nested model that are robust to the presence of parameter instability. The empirical evidence shows that for some countries we can reject the hypothesis that exchange rates are random walks. This raises the possibility that economic models were previously rejected not because the fundamentals are completely unrelated to exchange rate fluctuations, but because the relationship is unstable over time and, thus, difficult to capture by Granger Causality tests or by forecast comparisons. We also analyze forecasts that exploit the time variation in the parameters and find that, in some cases, they can improve over the random walk. Keywords: forecasting, exchange rates, parameter instability, random walks JEL: C52 C53 Date: 2005-03-19 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpif:0503006&r=all 584. An Empirical Analysis of Equity Default Swaps (I): Univariate Insights Arnaud_de_Servigny (Standard & Poor's) Norbert_Jobst (Standard&Poor's) The aim of this paper is to describe a new methodology to assess the risk of any Equity Default Swap (EDS). We show that as credit ratings can measure counter-party risk, it is technically possible to provide a quantitatively derived “through the cycle” risk estimate for EDSs. Whereas in the case of CDSs, the assessment is relevant at an issuer level, for EDSs it makes sense at an issue level. The reason for such a difference is that unlike for pure credit risk, the risk on EDSs directly depends on equity market conditions at origination and is therefore not fully counterparty specific. The outcome of this paper is that though this new methodology is purely quantitative, its level of performance is surprisingly high with superior results compared to previously developed techniques. Keywords: EDS Equity Default Swap JEL: F3 F4 Date: 2005-03-28 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpif:0503007&r=all 585. Early Locking to the Euro: Some Estimates for the New EU Countries based on Equilibrium Exchange Rates Martin Melecky The ECB recommends to prospective euro-area members that they choose the central parities, for fixing their currencies against the euro, consistent with a broad range of economic indicators while taking account of the market rate as well. In this paper, we estimate a behavioral model of the real exchange rates for a group of the EU 5 countries, along with equilibrium real exchange rates. In addition, we propose a methodology for estimating an optimal timing for ERM II entry based on convergence properties of the equilibrium real exchange rate. We find that the estimated optimal timing for ERM II entry derived from the analysis of the equilibrium real exchange rate suggests that fixing the national currencies of the EU 5 countries in forthcoming years would not be in contradiction with the convergence properties of the real equilibrium exchange rate. Keywords: Equilibrium Exchange Rate, ERM II Entry, Time-Series Panel Data JEL: C52 C53 E58 E61 F31 Date: 2005-03-29 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpif:0503008&r=all 586. THE FRENCH-GERMAN INTEREST RATE DIFFERENTIAL SINCE GERMAN Jerome Henry (ECB) Jens Weidmann (Bundesbank) We investigate the consequences of the 1992-1993 EMS crises, which resulted in the widening of the exchange rate bands, on the long-run linkages between the daily 1-month-Eurorates on German Mark, US-Dollar and French Franc. First, within a Gaussian VAR, both the US Eurorate and the French-German Eurorate differential are found stationary between December 1990 and December 1993. Second, using various GARCH models to account for heteroskedasticity show that Gaussian models can be misleading as to the interpretation of the linkages. Third, the estimated variance parameters are stable and the July 1993 episode is not linked to especially high a volatility. Finally, focusing on the French rate, we find asymmetry in the stochastic volatility, positive shocks being more persistent. Keywords: Interest rates, cointegration, heteroskedasticity, GARCH, EMS, Asymmetry in the ERM JEL: F3 F4 Date: 2005-03-30 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpif:0503009&r=all 587. The Structure Models for Futures Options Pricing and Related Researches Feng Dai (Zhengzhou Information Engineering University) Dongkai Zhai (Zhengzhou Information Engineering University) Zifu Qin (Zhengzhou Information Engineering University) Based on the structure model of option pricing (Feng DAI, 2005) and the Partial Distribution (Feng DAI, 2001), this paper designs a new kind of expression of futures price, presents the structure pricing model for American futures options on underlying non- dividend-paying, and gives three put-call parities between American call and put option on spots, call and put option on futures, and spot options and futures options, they are different from put-call parity of European options. We prove analytically that an American call option on futures must be worth more than the corresponding American call option on spot and an American put option on futures must be worth less than the corresponding American put option on spot in normal market; and the oppositions in inverted market. The final empirical researches also support the conclusions in this paper. Keywords: structure pricing, American options on futures, non- dividend- paying, analytic formula, put-call parity JEL: F3 F4 Date: 2005-03-31 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpif:0503010&r=all 588. Testing Twin Deficits Hypothesis: Using VARs and Variance Decomposition Ahmad Zubaidi Baharumshah (UPM) Evan Lau (UNIMAS) Ahmed M. Khalid (Bond University) This paper examines the twin deficits hypothesis in Indonesia, Malaysia, the Philippines and Thailand (ASEAN-4 countries). The major findings of this paper are: (1) Long run relationships are detected between budget and current account deficits. (2) We found that the Keynesian reasoning fits well for Thailand since a unidirectional relationship exists which runs from budget deficit to current account deficit. For Indonesia the reverse causation ( current account targeting) is detected while the empirical results indicate that a bidirectional pattern of causality exists for Malaysia and the Philippines. (3) We also found support for an indirect causal relationship that runs from budget deficit to higher interest rates, and higher interest rates lead to the appreciation of the exchange rate and this leads to the widening of current account deficit. (4) The results of the variance decompositions and impulse response functions suggest that the consequences of large budget and current account deficits become noticeable only over the long run. Keywords: Twin deficits, Cointegration, Variance Decomposition JEL: F3 F4 Date: 2005-04-01 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpif:0504001&r=all 589. Budget and Current Account Deficits in SEACEN Countries: Evidence Based on the Panel Approach. Ahmad Zubaidi Baharumshah (UPM) Evan Lau (UNIMAS) In this paper, the twin deficits hypothesis was examined using data of nine SEACEN countries. To compensate for the lack of time series observations, data was polled from the nine countries into one panel. The effects of interest rate and exchange rate in the causal chain between budget and current account deficits were stressed. At the empirical level, there is enough evidence to support the view that Asian budget deficit causes current account deficit directly as well as indirectly. From the policy perspective, the statistical analysis suggests that managing budget deficit offers scope for improvement in the current account deficit. However, this finding does not support the policy of manipulating the intermediate variables to reduce the twin deficits to a sustainable level since these variables appear to be endogenous in the system. Keywords: twin deficits JEL: F3 F4 Date: 2005-04-01 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpif:0504002&r=all 590. Crise Financeira Russa Bruno Jose Marques Pinto (Undergraduate School of Economics, Getulio Vargas Foundation Brazil) Thais Machado de Matos Vilela (Undergraduate School of Economics, Getulio Vargas Foundation Brazil) Ursula Silveira Monteiro de Lima (Undergraduate School of Economics, Getulio Vargas Foundation Brazil) Fundamental sources of the Russian financial crisis in 1998 are discussed. Focus is made on the time horizon of judgements concerning sustainability of the economic policy. It is argued that the macroeconomic policy pursued by the monetary authorities was not robust in a medium run, but, in the absence of external shocks was far from the crisis area, and required moderate, feasible modifications to be viable in a medium run. After the sharp deterioration in the terms of trade the previously pursued policy was no more sustainable even in a short run. The implications of the crisis were aggravated by the overly optimistic expectations by the monetary authorities of the near- term recovery in the terms of trade. Keywords: Russia, Financial Crisis, Crise Cambial JEL: F3 F4 Date: 2005-04-05 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpif:0504003&r=all 591. Foreign Banks in Transition Economies: Small Business Lending and Internal Capital Markets Ralph de Haas (De Nederlandsche Bank) Ilko Naaborg (University of Groningen) On the basis of focused interviews with managers of foreign parent banks and their affiliates in Central Europe and the Baltics, we analyse foreign banks’ small business lending and internal capital markets. This allows us to complement the standard empirical literature, which has difficulty in measuring important variables such as lending technologies and capital allocation systems. We find that the acquisition of local banks by foreign banks has not led to a persistent bias in these banks’ credit supply towards large multinational corporations. Instead, increased competition and the improvement of subsidiaries’ lending technologies have led foreign banks to gradually expand into the SME and retail markets. Second, we show that local bank affiliates are strongly influenced by the capital allocation and credit steering mechanisms of the parent bank. The credit growth of subsidiaries therefore potentially depends on the financial health of the foreign based parent bank. Keywords: foreign banks, transition economies, small business lending, internal capital markets JEL: F23 F36 G21 G31 G32 Date: 2005-04-11 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpif:0504004&r=all 592. The Portuguese Disinflation Process: Analysis of Some Costs and Benefits Antonio Portugal Duarte (Faculty of Economicas & GEMF, University of Coimbra) This study aims to analyse the Portuguese economic policy of disinflation through a nominal stabilization policy of the Portuguese escudo. We study the pegging of the Portuguese escudo ( PTE) to the Deutsch mark (DM) knowing the reputation of the Bundesbank for its anti- inflationary record and the role played by the Deutsch mark in the stability processes of foreign exchange and European price levels. The study was based on the attainment of co-integrating relations using Johansen’s methodology, the construction of a Near-VAR model and the establishment of a simulation analysis. The acceptance of German monetary policy and the pegging of the escudo to the Deutsch mark allowed the Portuguese economy to achieve its primary goal of price stability. However, despite the credibility and stability gains obtained, the adoption of a disinflation policy led to a real appreciation of the escudo. This study tries to clarify the influence that an appreciation of the real exchange rate can have on GDP and price levels. It cannot be denied that Portugal has made great progress in its European integration, successfully integrating into the group of EMU member-states. However we can point to a decrease in Portuguese competitiveness as the price paid for the disinflation process. This reflects itself in lower wages, which in turn limit output growth. We find that it is of primary importance to realise both the benefits of disinflation, and the costs of the policies in terms of output. Keywords: Monetary Policy, European Union, Disinflation, Co- Integration, Near-VAR and Simulation JEL: C32 C51 E42 E58 F31 F33 Date: 2005-04-13 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpif:0504005&r=all 593. Partial Communication and Collusion with Demand Uncertainty Heiko Gerlach (University OF AUCKLAND) This paper analyzes the role of communication in an infinitely repeated Bertrand game in which firms receive an imperfect private signal of a common value i.i.d. demand shock. Communication allows firms to coordinate on the most collusive price and it eliminates the possibility of undetectable price cuts. It is shown that firms can use stochastic intertemporal market sharing as a perfect substitute for communication in low demand states. Therefore, partial communication in high demand states is sufficient to achieve the first-best, full communication outcome. And partial communication in low demand state does not improve on the equilibrium without communication. Communication is most valuable to firms if signal frequency is intermediate, demand is characterized by upward shocks and the number of firms is neither too small nor too large. Keywords: Communication, Collusion, Repeated Games, Competition Policy JEL: L41 L13 D Date: 2005-01-31 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0501009&r=all 594. The Internationalization Efforts of Lithuanian Manufacturing Firms - Strategy of Luck? Audra I.Mockaitis (Vilnius Univeristy) Erika Vaiginiene (Vilnius University) Vincent Giedraitis (University of California) With the enlargement of the European Union, many Central and Eastern European (CEE) manufacturing companies have greater opportunity for internationalizing their activities. Although it is generally held that SMEs have the flexibility and ability to adapt to their environment more quickly than large enterprises, SMEs must be able to use these advantages in internationalizing. This study considers the internationalization efforts of a sample of Lithuanian manufacturing SMEs. Specifically, it is sought to reveal whether any patterns in the foreign market entry decisions of these firms may be found, through an examination of the degree of internationalization and its dependence on company age, size, risk aversion, commitment toward internationalization and knowledge acquisition. It is revealed that as yet, Lithuanian SMEs are in a state of uncertainty, and rely on manufacturing contracts in their home market. A pattern of “no pattern” may best describe their process of internationalization. Keywords: internationalization, SMEs, manufacturing sector, Lithuania JEL: L14 L21 L6 Date: 2005-02-03 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0502001&r=all 595. Price Competition and Product Differentiation when Goods have Network Effects Klaus CONRAD (University of Mannheim Department of Economics) The objective of our approach is to develop a model which captures horizontal product differentiation under environmental awareness, product innovation under network effects, and price competition whereby environmentally friendly products are costlier to produce. As an example, we refer to automobile producers, offering cars with a gasoline powered engine and one with a natural gas powered engine. The network of petrol stations provide the complementary good. The fulfilled expectation equilibrium could be either one with the firm offering the conventional engine as the only producer, one with the firm offering the new technology as the only producer, or one in which both firms share the market. Which equilibrium will emerge depends on the cost of producing energy efficient engines and on environmental awareness of the consumers. Due to the latter aspect the innovative firm has a chance to enter the market. We use a two stage game in prices and characteristics to analyse the respective market structure. We show that if environmental awareness is strong, the firm with the conventional technology will improve energy efficiency of its product. If the network effect is weak, both firms will be in the market. Prices and profits will decline if the role of the network effect becomes important. In order to find out whether private decision on the type of engine coincides with a socially optimal product differentiation, we determine the position of the two types of engine by a welfare maximizing authority. Keywords: Price competition; Quality competition; Environmental awareness; Network effects; Automobiles. JEL: L Q H L Date: 2005-02-07 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0502002&r=all 596. Moore's Law, Competition and Intel's Productivity in the 1990s Ana Aizcorbe (Bureau of Economic Analysis) In the mid-1990s, a pickup in measured productivity growth for the semiconductor industry coincided with an economy-wide acceleration in labor productivity growth. The pickup in semiconductor markets reflected an increase in the growth of real output that was generated by what Dale Jorgenson (2001) called an “inflection point” in the price indexes for the semiconductor industry. Jorgenson hypothesized that the inflection point reflected increases in the rate of product innovation made possible by an increase in Moore’s Law, a stylized description of technology that currently states that the number of electrical components on a chip will double every eighteen months. Within semiconductors, microprocessors (MPUs) produced by Intel—the world’s largest producer of the chips that serve as a computer’s central processing unit—were the primary contributor to the inflection point in the semiconductor index. The inflection point in the price index coincided with two changes in the price contours for Intel’s chips. First, price contours for Intel’s chips became steeper around 1995. Because most price index formulae boil down to functions of weighted averages of price change, steeper price contours translate directly into more rapidly declining price indexes. At the same time, the product lifecycle for MPUs—the length of time chips are sold in the market—shortened and Intel began to introduce chips more frequently. What caused these changes in pricing and product cycles? This paper provides a simple framework to help gain some intuition on these issues. The model provides a set of conditions under which an increase in Moore’s Law is consistent with both of these stylized facts. In the model, an increase in Moore’s Law raises the quality of future chips relative to today’s chips. If consumers view these chips as substitutes, then increases in the quality of tomorrow’s chips push down the prices for today’s chips and can, under certain conditions, generate an inflection point in the price index. However, the framework also suggests that changes in the attributes of contemporaneous substitutes can have the same effects. Thus, the model suggests that increases in the quality of competitor’s chips can generate an inflection point through the same channel. This is an important possibility to consider because Intel faced increasing competition from AMD beginning in the mid-1990s, about when the inflection point occurred. Keywords: Semiconductor Industry, Price Measurement,product cycles JEL: L Date: 2005-02-08 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0502003&r=all 597. Product Introductions and Price Measures for Microprocessor Chips in the 1990s Ana Aizcorbe (Bureau of Economic Analysis) The semiconductor industry is credited with one of the fastest rates of product innovation and technical change within manufacturing, as chipmakers generate wave after wave of ever more powerful chips at prices not much higher than those of existing chips. This industry has undoubtedly been an important driver of productivity growth as advances in semiconductors paved the way for co-invention in downstream industries that, taken together, provide firms with more efficient ways to do business and the ability to provide new goods and services that ultimately increase consumer welfare. In the mid-1990s, measured productivity growth for the industry shows a pickup that coincided with an economy-wide pickup in labor productivity growth. The acceleration in the semiconductor market stems from an increase in the growth of real output that was, in turn, generated by what Jorgenson (2001) calls an “inflection point” in price indexes for the semiconductor industry. Within semiconductors, microprocessors (MPUs) produced by Intel were the primary contributor to both the trend and inflection point in this price index. This paper explores movements in the price index for MPU chips over the 1990s to better understand sources of the pickup in measured productivity growth. Three major developments in MPU markets that roughly coincided with the measured increase in productivity are reviewed: 1) the introduction of more sophisticated lithography equipment that could have allowed Intel to increase its rate of product innovation; 2) an increase in competitive pressure from AMD; and 3) a pickup in the rate of product introductions at Intel. A stylized framework for decision-making at Intel is developed and used to show that the increase in the rate of product introductions at Intel could have been a profit-maximizing response to increased competition from AMD. The model is then used to explore the implications for price measurement. Keywords: Semiconductor industry, price measurement, product cycles JEL: L Date: 2005-02-08 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0502004&r=all 598. Regulating the Dutch Waste Market E. Dijkgraaf (Erasmus University Rotterdam, ECRi, SEOR) Elbert Dijkgraaf defended his PhD-thesis 'Regulating the Dutch Waste Market' at 5 november 2004. This thesis analyses whether the risen costs of waste collection and treatment can be diminished by changing policy instruments. The thesis shows that user fees are very effective in reducing the total waste quantity, while they also result in better separation behavior. Furthermore, the use of contracting out to private or public firms reduces total collection costs. Third, a social cost benefit analysis, in which environmental effects are included, shows that landfilling is much cheaper than incineration. Finally, the use of international competition might reduce treatment costs. In total the thesis concludes that a cost saving of nearly 40% of current costs is possible when all four changes are implemented. Keywords: Waste market, collection, treatment, landfilling, incineration, contracting out, cost-benefit analysis, model JEL: D21 H21 H31 H42 H43 H71 L33 L99 Q38 Q42 Date: 2005-02-08 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0502005&r=all 599. Collusion in the Dutch waste collection market E. Dijkgraaf (Erasmus University Rotterdam, ECRi, SEOR) R. H. J. M. Gradus (Erasmus University Rotterdam, Vrije Universiteit Amsterdam) In this paper we analyse whether collusion exists in the Dutch waste collection market, which shows a high degree of concentration. Although scale effects might be in accordance with this market outcome, the question is whether this concentration is in fact a result of fair competition. Using data for (nearly) all Dutch municipalities we estimate whether collusion exists and what the impact is on tariffs for waste collection. The results indicate that high concentration increases prices and therefore ( partly) offsets the advantage of contracting out. The presence of competing public firms might be essential to ensure more and fair competition. Keywords: Waste collection, collusion, public-private firms, contracting out JEL: D43 L33 R51 Date: 2005-02-08 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0502006&r=all 600. Advancing Economic Research on the Free and Open Source Software Mode of Production Jean-Michel Dalle (Universite Pierre et Marie Curie) P. A. David (Stanford University) Rishab A. Ghosh (University of Maastricht-MERIT) W. E. Steinmueller (University of Sussex-SPRU) Early contributions to the academic literature on free/libre and open source software (F/LOSS) movements have been directed primarily at identifying the motivations that account for the sustained and often intensive involvement of many people in this non-contractual and unremunerated productive activity. This issue has been particularly prominent in economists’ contributions to the literature, and it reflects a view that widespread voluntary participation in the creation of economically valuable goods that is to be distributed without charge constitutes a significant behavioral anomaly. Undoubtedly, the motivations of F/LOSS developers deserve to be studied more intensively, but not because their behaviors are unique, or historically unprecedented. In this essay we argue that other aspects of the “open source” phenomenon are just as intriguing, if not more so, and possibly are also more consequential topics for economic analysis. We describe the re-focusing and re-direction of empirical and theoretical research in an integrated international project ( based at Stanford University/SIEPR) that aims at better understanding a set of less widely discussed topics: the modes of organization, governance and performance of F/LOSS development -- viewed as a collective distributed mode of production.. We discuss of the significance of tackling those questions in order to assess the potentialities of the “open source way of working” as a paradigm for a broader class of knowledge and information- goods production, and conclude with proposals for the trajectory of future research along that line. JEL: L Date: 2005-02-09 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0502007&r=all 601. SimCode: Agent-based Simulation Modelling of Open-Source Software Development Jean-Michel Dalle (University Pierre-et-Marie-Curie & IMRI- Dauphine) Paul A. David (Stanford University & Oxford Internet Institute) We present an original modeling tool, which can be used to study the mechanisms by which free/libre and open source software developers’ code-writing efforts are allocated within open source projects. It is first described analytically in a discrete choice framework, and then simulated using agent-based experiments. Contributions are added sequentially to either existing modules, or to create new modules out of existing ones: as a consequence, the global emerging architecture forms a hierarchical tree. Choices among modules reflect expectations of peer- regard, i.e. developers are more attracted a) to generic modules, b) to launching new ones, and c) to contributing their work to currently active development sites in the project. In this context, we are able – particularly by allowing for the attractiveness of “hot spots”-- to replicate the high degree of concentration (measured by Gini coefficients) in the distributions of modules sizes. The latter have been found by empirical studies to be a characteristic typical of the code of large projects, such as the Linux kernel. Introducing further a simple social utility function for evaluating the mophology of “software trees,” it turns out that the hypothesized developers’ incentive structure that generates high Gini coefficients is not particularly conducive to producing self- organized software code that yields high utility to end-users who want a large and diverse range of applications. Allowing for a simple governance mechanism by the introduction of maintenance rules reveals that “early release” rules can have a positive effect on the social utility rating of the resulting software trees. JEL: L Date: 2005-02-09 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0502008&r=all 602. Price Deflators for High Technology Goods and the New Buyer Problem Ana Aizcorbe (Bureau of Economic Analysis) Some items in a household’s market basket, notably durable goods, are purchased only occasionally. In contrast, standard price measures implicitly assume that consumers purchase some amount of every available good in every period. The occasional purchase of an existing good by a new buyer generates a “new buyer” problem that is similar to the traditional “new goods” problem generated by the entry of new goods. This paper uses an idea introduced by Fisher and Griliches (1995) and Griliches and Cockburn (1995) to develop price indexes for goods that are not purchased in each period. A comparison of the resulting price indexes with those calculated under the standard assumption suggests that the sharp declines typically exhibited by price indexes for many high technology goods may be overstated. However, it is impossible to make any definitive statements about the numerical magnitude of this potential problem. These preliminary findings simply underscore the importance of further research to study this problem for high tech goods and to explore the possibility that similar problems may arise for other durable goods. Keywords: Price Indexes, durable goods demand, consumer heterogeneity JEL: L Date: 2005-02-09 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0502009&r=all 603. Can ‘Open Science’ be Protected from the Evolving Regime of IPR Protections? Paul A. David (Stanford University) Increasing access charges and transactions costs arising from monopoly rights in data and information adversely affect the conduct of science, especially exploratory research programs. The latter are widely acknowledged to be critical for the sustained growth of knowledge-driven economies, but are most efficiently pursued in the “open science” mode. In some fields, informal cooperative norms of behavior among researchers– in regard to the sharing of timely access to raw data- steams and documented database resources – are being undermined by legal institutional innovations that accommodate the further privatising of the public domain in information. A variety of corrective measures are needed to restore proper balance to the IPR. JEL: L Date: 2005-02-10 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0502010&r=all 604. The Allocation of Software Development Resources In ‘Open Source’ Production Mode Jean-Michel Dalle (Universite Paris VI & IMRI-Universite Paris Dauphine) Paul David (Stanford University & Oxford Internet- Institute) This paper aims to develop a stochastic simulation structure capable of describing the decentralized, micro-level decisions that allocate programming resources both within and among open source/free software (OS/FS) projects, and that thereby generate an array of OS/FS system products each of which possesses particular qualitative attributes. The core or behavioral kernel of simulation tool presented here represents the effects of the reputational reward structure of OS/FS communities (as characterized by Raymond 1998) to be the key mechanism governing the probabilistic allocation of agents’ individual contributions among the constituent components of an evolving software system. In this regard, our approach follows the institutional analysis approach associated with studies of academic researchers in “open science” communities. For the purposes of this first step, the focus of the analysis is confined to showing the ways in which the specific norms of the reward system and organizational rules can shape emergent properties of successive releases of code for a given project, such as its range of functions and reliability. The global performance of the OS/FS mode, in matching the functional and other characteristics of the variety of software systems that are produced with the needs of users in various sectors of the economy and polity, obviously, is a matter of considerable importance that will bear upon the long-term viability and growth of this mode of organizing production and distribution. Our larger objective, therefore, is to arrive at a parsimonious characterization of the workings of OS/FS communities engaged across a number of projects, and their collective productive performance in dimensions that are amenable to “social welfare” evaluation. Seeking that goal will pose further new and interesting problems for study, a number of which are identified in the essay’s conclusion. Yet, it is argued that that these too will be found to be tractable within the framework provided by refining and elaborating on the core (“proof of concept”) model that is presented in this paper. JEL: L Date: 2005-02-10 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0502011&r=all 605. The Beginnings and Prospective Ending of “End-to-End”: An Evolutionary Perspective On the Internet’s Architecture Paul A. David (All Souls College, Oxford & Stanford University) The technology of “the Internet” is not static. Although its “end-to- end” architecture has made this “connection- less” communications system readily “extensible,” and highly encouraging to innovation both in hardware and software applications, there are strong pressures for engineering changes. Some of these are wanted to support novel transport services (e.g. voice telephony, real-time video); others would address drawbacks that appeared with opening of the Internet to public and commercial traffic - e.g., the difficulties of blocking delivery of offensive content, suppressing malicious actions (e.g. “denial of service” attacks), pricing bandwidth usage to reduce congestion. The expected gains from making “improvements” in the core of the network should be weighed against the loss of the social and economic benefits that derive from the “end-to-end” architectural design. Even where technological “fixes” can be placed at the networks’ edges, the option remains to search for alternative, institutional mechanisms of governing conduct in cyberspace. JEL: L Date: 2005-02-10 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0502012&r=all 606. On Learning, Experimentation, and Dynamics Leonard J. Mirman (University of Virginia, Department of Economics) Marc Santugini (University of Virginia, Department of Economics) The object of this paper is to study learning and experimentation in dynamic models in which the link between periods is not only beliefs but also capital. We study the influence of learning and experimentation on investment under both signal-dependence and signal-independence. A problem is signal-dependent when the signal the economic agent uses to update his beliefs about the unknown parameter has either a direct impact on the next period maximand or an indirect impact through a law of motion constraining his decision in the next period. A problem that does not satisfy this definition is signal- independent. We first study a class of dynamic and signal- independent models, using an example that yields a closed-form solution for the infinite-horizon program. The closed-form solution enables us to study the effect of learning on investment, the dynamics, as well as the steady state. We then study how signal-dependence influences the effect of experimentation on investment. We are able to break the effect of experimentation into two effects: the dynamic effect and the belief effect. These two effects are different under signal-dependence and signal- independence. Several examples are presented to study the direction of learning and experimentation on investment in finite- horizon programs under both signal-dependent and signal- independent framework. Keywords: Signal-Dependence, Information, Investment, Growth. JEL: D42 D83 D92 E22 L12 O12 Q20 Date: 2005-02-18 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0502013&r=all 607. Hard Core Cartels and Avoidance of Investigation in the Presence of an Antitrust Authority Gianmaria Martini (University of Bergamo) Hard Core Cartels aim to design, being aware of the presence of an antitrust authority, market practices granting avoidance of antitrust investigations. We show, in a dynamic game, that they can reach this goal and get extra--normal profits. However, the bulk of this opportunity does not lay, here, in limiting price changes across periods (as in Harrington [2004b]), but rather in sending a signal to the authority which has a twofold effect: (1) it does make evident that cartel's members are currently not engaged in an ``excessive'' degree of collusion, (2) it credibly shows that this moderate collusive activity has a persistence effect, i.e. it will be maintained also in future periods. We also show that antitrust remedies (e.g. behavioral constraints or injunction reliefs) are more powerful, in limiting the collusive activity, than fines. Last, we show that social welfare is higher if Hard Core Cartels have limited information about the type of authority (i.e. tough or accommodating) they are facing. JEL: D43 L13 L41 Date: 2005-02-23 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0502014&r=all 608. Internet Auctions: Description, Bidders' Profiles and Implications Chokri Dridi (University of Illinois at Urbana-Champaign) The increasing quantity of items bough and sold over the internet led to the success of internet auctions, to the introduction of new auction rules and the creation of new businesses and merger among existing ones. In this paper, we present a description of existing internet auction rules and typical profile of consumers who use them. We found that bidders are most likely located in the U.S., have some internet experience and skills and that they belong to the 26-50 years old age group. We also discuss the implication of online auctions on resource allocation. Keywords: Internet Auctions, Online Auctions JEL: L Date: 2005-02-24 Date: 2005-02-26 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0502015&r=all 609. Endogenous Timing in a Mixed Oligopoly with Foreign Competitors Yuanzhu Lu (National University of Singapore) Endogenous order of moves is analyzed in a mixed oligopoly with one public firm, n1 domestic private firms and n2 foreign private firms, where the firms first choose the timing for choosing their quantities. We consider the observable delay game of Hamilton and Slutsky (1990) in the context of a quantity setting mixed oligopoly where firms first choose the timing of choosing their quantities before quantity choice and find subgame perfect Nash equilibria (SPNE). The main result is that the public firm chooses to be a follower of all the domestic private firms and not to be a leader of all the foreign private firms, and that the number of SPNE depends on the number of domestic private firms and of foreign private firms. Keywords: Mixed Oligopoly; Endogenous Timing; Foreign Competitors JEL: C72 D43 H42 L13 Date: 2005-03-01 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0503001&r=all 610. Advertising in the US Personal Computer Industry Michelle Sovinsky Goeree (Claremont McKenna College) Traditional models of consumer choice assume consumers are aware of all products for sale.This assumption is questionable, especially when applied to markets characterized by a high degree of change, such as the personal computer (PC) industry. I present an empirical discrete-choice model of limited information on the part of consumers, where advertising influences the set of products from which consumers choose to purchase. Multi-product firms choose prices and advertising in each medium to maximize their profits. I apply the model to the US PC market, in which advertising expenditures are over $2 billion annually. The estimation technique incorporates macro and micro data from three sources. Estimated median industry markups are 19% over production costs. The high industry markups are explained in part by the fact that consumers know only some of the products for sale.Indeed estimates from traditional consumer choice models predict median markups of one fourth this magnitude. I find that product-specific demand curves are biased towards being too elastic under traditional models of consumer choice. The estimates suggest that PC firms use advertising media to target high-income households, that there are returns to scope in group advertising, and that word-of-mouth or experience plays a role in informing consumers. The top firms engage in higher than average advertising and earn higher than average markups. JEL: L15 D12 D21 M37 L63 Date: 2005-03-10 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0503002&r=all 611. R&D Activities of Flemish Companies in the Private Sector: An Analysis for the period 1998-2002 Michele CINCERA (Universite Libre de Bruxelles-DULBEA-CERT & CEPR) The second chapter of this Study analyses the results of the last two surveys (2000 and 2002). These surveys cover a period of rapid expansion of R&D-activities in the Flemish economy. The BERD has grown on average with nearly 13% yearly between 1998 and 2001. The most important characteristic of Flemish business R&D is the very strong concentration of R&Dexpenditures in a few big firms (the top 5 stands for 63% of the expenditures of all permanent R&D players) and in a few sectors (66% in the chemical ICT sector). This concentration has been increasing even further during this period of expansion and re-inforced tendencies of outsourcing (up to 23%), the capital intensity of research, as well as in a shift from research to development (the latter from 70 tot 77%). Another characteristic is the predominance of foreign decision power: nearly 90% of R&D expenditures are performed in foreign controlled enterprises. But those firms are well integrated in the Flemish innovation system. R&D cooperations have been executed for the larger part (45%) with Flemish partners, and they receive the larger majority of R&D outsourcing. R&D is mostly product oriented (62%, vs. 24% process oriented); 56% of R&D actors have introduced new or technologically improved products and 40% new or technologically improved processes during 2000-2001. Keywords: R&D activities private sector Flanders 3% JEL: L Date: 2005-03-12 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0503003&r=all 612. The Economic Incentives for Sharing Security Information Esther Gal-Or (Katz School, University of Pittsburgh) Anindya Ghose (Stern School, New York University) Given that Information Technology (IT) security has emerged as an important issue in the last few years, the subject of security information sharing among firms, as a tool to minimize security breaches, has gained the interest of practitioners and academics. To promote the disclosure and sharing of cyber-security information among firms, the US federal government has encouraged the establishment of many industry based Information Sharing & Analysis Centers (ISACs) under Presidential Decision Directive 63. Sharing security vulnerabilities and technological solutions related to methods for preventing, detecting and correcting security breaches, is the fundamental goal of the ISACs. However, there are a number of interesting economic issues that will affect the achievement of this goal. Using game theory, we develop an analytical framework to investigate the competitive implications of sharing security information and investments in security technologies. We find that security technology investments and security information sharing act as ``strategic complements'' in equilibrium. Our results suggest that information sharing is more valuable when product substitutability is higher, implying that such sharing alliances yield greater benefits in more competitive industries. We also highlight that the benefits from such information sharing alliances increase with the size of the firm. We compare the levels of information sharing and technology investments obtained when firms behave independently (Bertrand-Nash) to those selected by an ISAC which maximizes social welfare or joint industry profits. Our results help us predict the consequences of establishing organizations such as ISACs, CERT or InfraGard by the federal government. Keywords: Technology Investment, Information Sharing, Security Breaches, Externality Benefit, Spillover Effect, Social Welfare JEL: L Date: 2005-03-13 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0503004&r=all 613. Forest owners’ collective action against the risk of forest fire: a game theoretical approach Americo Mendes (Portuguese Catholic University - Porto, Faculty of Economics & Management) This paper is a follow up on a earlier one (Mendes, 1998) where I proposed a series of models for forest owners associations represented as organisation made up of two groups of strategically interacting players: the forest owners who are members of the association and the board of directors they have elected. The directors decide on the amount of services provided by the association which can be public goods (collective representation of the members, promotion of their common interests, diffusion of general information about forest programmes and best forest management practices, etc.) and private goods and services (silvicultural works preventive of forest fires, technical advice, etc.). The models were set up as games in strategic form with complete information and no payoff uncertainty. Here I pick up the second of, what is called in that previous paper, the 'Portuguese' models and extend it in the following directions: - there is payoff risk for the forest owners due to exogenous hazards (forest fires or others); - forest owners can buy private services from the owners which contribute to reduce the losses resulting from those hazards. The main focus in this paper is to derive the comparative static results about the demand of these private services by the forest owners. Keywords: forest owners’ associations, public and private goods joint supply, game theory JEL: L Date: 2005-03-13 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0503005&r=all 614. Integrating Competition Policy and Innovation Policy: The Case of R&D Cooperation Georg von Graevenitz (INNO-tec, Munich School of Management) This paper considers the integration of competition policy and innovation policy in the context of R&D cooperation. An explicit comparison of the welfare losses under ex-ante and ex-post R&D cooperation reveals differing incentives to undertake R&D in both regimes. The strength of these incentives is related to the degree of product market competition. We show that there is a clear relationship between the degree of competition in the product market and the relative performance of firms under ex- ante and ex-post cooperation. We derive implications for the design of competition policy rules. Keywords: Competition Policy, Innovation Policy, R&D Cooperation, Licensing, Research Joint Venture, Oligopolistic R&D JEL: O31 Date: 2005-03-15 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0503006&r=all 615. Spillovers Reconsidered: Analysing Economic Welfare under Complementarities in R&D Georg von Graevenitz (INNO-tec, Munich School of Management) We analyse economic welfare in R&D intensive industries under varying assumptions on the spillover process. The focus lies on spillover processes with complementary R&D investments such as those modelling absorptive capacity. There spillovers give rise to both negative and positive externalities. We show that the rationale for public policy intervention is strengthened where spillovers also have positive effects. This conclusion is based on the supermodularity of the spillover process and the investment game. We characterise a large class of spillover processes with similar implications for public policy. We show that results of much empirical work on absorptive capacity extend to this class of models. Keywords: spillovers, complementarity, absorptive capacity, supermodularity, oligopolistic R&D JEL: O31 Date: 2005-03-15 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0503007&r=all 616. How Much Does R&D Decision Depend on Firm, Industry, Group and its Interactions? K.S. Sujit (Alemaya University , Dire dawa) Badshah Mukherjee (ICFAI University, India) In the recent year, technological progress through research and development (R&D) has been widely recognized as a key factor contributing to economic growth and competitiveness of the economy. In the traditional industrial organization (IO) literature R&D activities was considered to be an important conduct variable that can affect performance of the industry. Industrial organization (IO) literature stresses that the R&D behaviour is linked to industry structure and has the ability to create barriers to entry. On the other hand subsequent studies have stressed on the strategic groups within an industry as the main driving force behind the R&D behaviour of firms. However, the resource based view stresses on the internal capability of the firm as the main driving force. They also emphasized that the behaviour of the firm is path dependent. This study is an attempt to measure the effects of industry, group, and firm on R&D behaviour of the firm and their interaction. The study uses both continuous and categorical variables in an ANCOVA setting. The sample consists of data about Indian companies across 29 industries during 1995-2003. The findings show that though the effects of the industry and the firm are important, the most significant contributor is the effect of the interaction between the groups and the industry. Keywords: R&D decisions , business groups JEL: L Date: 2005-03-17 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0503008&r=all 617. Consumer Privacy and Marketing Avoidance Il-Horn Hann (University of Southern California) Kai-Lung Hui (National University of Singapore) Sang-Yong Tom Lee (Hanyang University) Ivan Png (National University of Singapore) We introduce consumer avoidance into analytical marketing research. We show that consumer efforts to conceal themselves and to deflect marketing have a crucial impact on sellers?? marketing strategy. Under reasonable conditions, seller marketing is a strategic complement with consumer concealment. Hence, consumer measures to conceal themselves from marketing will increase its cost-effectiveness and lead sellers to market more. Policies that encourage consumers to conceal their identities would lead sellers to increase marketing. By contrast, policies that encourage consumers to deflect seller marketing would lead sellers to reduce marketing. Further, there is a clear need for public policy. To the extent of the externality from the sellers to consumers, the equilibrium levels of marketing (chosen by sellers) and concealment and deflection (chosen by consumers) exceed the social optimum. JEL: L Date: 2005-03-25 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0503009&r=all 618. Delayed Product Introduction Kai-Lung Hui (National University of Singapore) Qiu-Hong Wang (National University of Singapore) We investigate the incentives of a monopolistic seller to delay the introduction of a new and improved version of his product. By analyzing a three-period model, we show that the seller may prefer to delay introducing a new product, even though the enabling technologies for the product are already available. The underlying motivation is analogous to that found in the durable goods monopolist literature – the seller suffers from a time inconsistency problem that causes his old and new products to cannibalize each other. Without the ability to remove existing stock of the old product from the market, shorten product durability, or pace research and development (R&D), he may respond by selling the new product later. We characterize the equilibria with delayed introduction, and study their changes with respect to market and product parameters. In particular, we show that delayed introduction could occur regardless of whether the seller can offer upgrade discounts to consumers, that instead, it is related to quality improvement brought about by the new product, durabilities, and discount factors. Further, we show that contrary to previous studies, delayed introduction could bring socially efficient outcomes as well. Based on the insights of the model, we provide practical suggestions on pricing and policies. Keywords: delayed introduction, durable goods monopolist, cannibalization, durability, time inconsistency, upgrade, product innovation, three-period model JEL: L Date: 2005-03-27 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0503011&r=all 619. ICT productivity and firm propensity to innovative investment: learning effect evidence from italina micro data Gianfranco Enrico Atzeni (University of Sassari & CRENoS) Oliviero Antonio Carboni (University of Sassari & CRENoS) This work attempts to shed light on the “information technology productivity paradox”. Employing a large data set of Italian manufacturing firms we compute ICT marginal productivity across different cluster of firms and the impact of information and communication technology (ICT) on output growth. Following Yorukoglu’s (1998) vintage capital idea, in which ICT is associated with consistent learning-by-doing effect, we explore whether firm capital replacement/introduction behaviour and firm’s technological investment aptitude have any role in explaining ICT productivity. We find that low capital replacement high capital introduction) yields to sensibly greater ICT marginal revenues compared to high replacement (low capital introduction). However, what really matters in explaining ICT productivity is the level of innovation the new capital embodies. In fact, for non-innovative firms the ICT paradox is far less consistent. This strongly suggests the existence of learning by doing effects. In terms of growth contribution we find that ICT have an impact disproportionately wide compared to the share in total investment they represent Keywords: Growth, investment behaviour, information and communication technologies, productivity, replacement JEL: D21 D24 L2 O3 Date: 2005-03-27 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0503012&r=all 620. Impact of Market Entry and Exit on EU Productivity and Growth Performance Michele Cincera (Universite Libre de Bruxelles-DULBEA-CERT & CEPR) Olivia Galgau (Universite Libre de Bruxelles-DULBEA) The European Union and its Member States have been engaged in product market reforms over a long period with notable reforms including the Single Market Program and the Lisbon Agenda launched in March 2000. Product market reforms are seen as exerting both a direct and an indirect impact on productivity, however, the net effects of the direct effect were found to be small. This study concentrates on the impact of product market reforms on firm entry and exit that can itself be decomposed into two effects: internal restructuring which refers to productivity growth of individual firms present in the industry and external restructuring whereby the process of market selection leads to a reallocation of resources among individual firms. The change in firm entry and exit will in turn affect macroeconomic performance. Keywords: Market entry and exit, product market reforms, macroeconomic performance JEL: L16 L50 O47 O52 Date: 2005-03-28 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0503013&r=all 621. E-commerce, two-sided markets and info-mediation Alexandre Gaudeul (University of East Anglia - Norwich and ESRC-CCP) Bruno Jullien (IDEI - GREMAQ - University of Toulouse) Participants in a market, buyers and sellers, may need the service of an intermediary who will put them into contact and give them information about their potential trading partner. The intermediary chooses what price it will charge to each side to have access to its service. It also chooses what information it will reveal, for example to the buyer about the value of the seller’s product. In a market with network externalities, it would be optimal that everybody had access to the other side, as each side wants as many agents from the other side to be present as possible. This is however not feasible as the intermediary must charge positive access prices if it is to make any profit. In a market with asymmetric information, it would be optimal that all information about the buyers’ and sellers’ valuation for the traded product be available, but the intermediary will want to conceal or manipulate that information to increase its profit. The paper examines in the first part how network externalities play out in the intermediary’s access pricing strategies in both a monopoly and a competitive setting. In the second part, the paper shows how the intermediary will strategically manipulate and conceal information to extract the surplus from trade in the market it intermediates. Keywords: Intermediation, internet, asymmetric information, information goods, network effects, two sided markets, matching. JEL: D4 L1 Date: 2005-03-31 Date: 2005-04-05 Date: 2005-04-05 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0503014&r=all 622. Patents Hinder Collusion Klaus Kultti (University of Helsinki) Tuomas Takalo (University of Toulouse & Bank of Finland) Juuso Toikka (Helsinki School of Economics) We argue that a patent system makes collusion among innovators more difficult. Our simple argument is based on two properties of the patent system. First, a patent not only protects against infringement but also against retaliation by former collusion members. Second, a deviator has an equal chance with former collusion members to get a patent on new innovations. We show that if a patent system reduces spillovers, it renders collusion impossible. Moreover, it is possible to design a patent system that simultaneously increases knowledge spillovers and eliminates collusion Keywords: Patens, Collusion, Secrecy, Innovation JEL: L Date: 2005-03-31 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0503015&r=all 623. La productividad en la industria espanola: Evidencia microeconomica Elena Huergo (Universidad Complutense de Madrid) Lourdes Moreno (Universidad Complutense de Madrid) El objetivo de este trabajo es ofrecer una revision de las principales regularidades que, desde una optica microeconomica, se han observado en los trabajos que analizan la evolucion de la productividad y los determinantes de su crecimiento en la economia espanola durante las ultimas decadas. Los estudios senalan hacia la existencia de costes de ajuste y los procesos de entradas y salidas de empresas en los mercados como los principales causantes del caracter prociclico de la productividad en la industria manufacturera. Simultaneamente, la evidencia obtenida destaca la realizacion de actividades de I+D+I, la introduccion de nuevas tecnologias de la informacion y las telecomunicaciones y la presion competitiva como los determinantes fundamentales, aunque no unicos, de su crecimiento. Keywords: Growth, productivity, technological activities, firms' dynamics. JEL: D24 L6 O3 Date: 2005-04-04 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0504001&r=all 624. Entrada y competencia en los servicios de telecomunicaciones Israel J. Munoz (Universidad Complutense de Madrid) Elena Huergo (Universidad Complutense de Madrid) Este trabajo analiza la entrada y la competencia en servicios de telecomunicaciones, en los que las empresas se diferencian por sus costes hundidos y por la valoracion que reciben de los consumidores. En este marco de analisis desaparece el problema de coordinacion presente en la literatura sobre entrada con costes hundidos, debido a que ahora la competencia en precios se ve modificada por el parametro de valoracion. Cuando se introduce heterogeneidad en los consumidores, la entrada queda definida por la combinacion de costes y valoracion, mientras los consumidores dirigen su demanda hacia la empresa que mejor se adapta a su tipo. Keywords: Entry, telecommunications, sunk costs, discrete choice of consumers JEL: L1 L11 L96 Date: 2005-04-04 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0504002&r=all 625. El diagnostico de poder de mercado en Economia Industrial: Una revision de la literatura empirica espanola del siglo XX Elena Huergo (Universidad Complutense de Madrid) El proposito de este trabajo es revisar las principales aplicaciones sobre el diagnostico de poder de mercado que hacen referencia concreta a la industria espanola de manufacturas. En el marco del paradigma clasico las aplicaciones han consistido basicamente en estimaciones de ecuaciones de rentabilidad. La evidencia obtenida a partir de estas estimaciones tiende a senalar un efecto positivo de la concentracion sobre los resultados empresariales, si bien su magnitud y significatividad varia en funcion del resto de variables explicativas. En la linea de la Nueva Organizacion Industrial Empirica, el conjunto de estudios empiricos sobre poder de mercado en la industria espanola es muy reducido, consecuencia en parte del retraso en el cambio de orientacion del trabajo aplicado en Espana. Dentro de este pequeno grupo se observa una gran heterogeneidad que esta en consonancia con la observada en la literatura empirica internacional, respecto a la que las aplicaciones espanolas han reducido notablemente la distancia que manifestaban en decadas anteriores. Keywords: Market Structure, Market power, empirical evidence JEL: L Date: 2005-04-04 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0504003&r=all 626. Trade Balance Constraints and Optimal Regulation Lucia Quesada (University of Wisconsin Madison) Omar Chisari (Universidad Argentina de la Empresa) We investigate the interactions between optimal regulation and external credit constraints. When part of a regulated ?rm is owned by foreign investors, a credit-constrained country who wants to send pro?ts abroad has to generate enough surplus in the trade account in order to compensate capital out°ows. We show that the credit constraint translates into a constraint of maximum profits for the regulated firm. Overall e±ciency in the regulated sector is reduced to maintain incentive compatibility. A flexible exchange rate helps relaxing the credit constraint. E±ciency is higher than with a fixed exchange rate, but still lower than without credit constraints. Keywords: Optimal regulation, Credit constraints, International trade JEL: D82 F32 L51 Date: 2005-04-06 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0504004&r=all 627. Computer Mediated Communications and Communities of Practice Paul Hildreth (University of York) Chris Kimble (University of York) Peter Wright (University of York) Within the Knowledge Management context, there is growing interest in computer support for group knowledge sharing and the role that Communities of Practice play in this. Communities of Practice are groups of individuals with a common purpose and who share some background, language or experience. The community is regenerated as newcomers join the group and old-timers leave. The newcomers have access to the old- timers and learn from them. This generally takes place through situated learning. New group knowledge is also created as members of the community have a problem to solve and swap experiences and anecdotes to solve the problem, possibly arriving at a novel solution. This may then be further shared through anecdotes so that it eventually becomes part of the group's store of collective knowledge. Communities of Practice provide an excellent forum for knowledge sharing and a vital question is whether the new communications media, which provide new possibilities for collaboration and distributed working, could support the existence of such groups in a distributed environment. This question takes on an added relevance with the rapid internationalization of business that can spread the distribution over national boundaries posing problems of cultural and temporal as well as physical distance. This paper reports on a case study which was the first stage in exploring whether Computer Mediated Communications technologies ( CMCs) can support distributed international Communities of Practice. The aim of the case study was to explore the possible existence of Communities of Practice in an international organization, to identify such groups and to ascertain the media used. Keywords: Computer Mediated Communications technologies, CMC, Communities of Practice, CoP, Knowledge Management, KM JEL: M12 O33 O34 Date: 2005-04-07 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0504005&r=all 628. Effective Virtual Teams through Communities of Practice Chris Kimble (University of York UK - Department of Computer Science) Alexis Barlow (Glasgow Caledonian University - Caledonian Business School) Feng Li (Strathclyde Business School - Department of Management Science) This paper examines the nature of virtual teams and their place in the networked economy. It presents a framework for categorising virtual teams and argues that fundamental changes have taken place in the business environment which force people and organisations to operate in 'two spaces' simultaneously: the physical space and the electronic space. It highlights some of the issues of trust and identity that exist in virtual teams and argues that, due to certain barriers, only a small proportion of these teams reach a satisfactory level of performance. Using the evidence from two recent sets of studies, it highlights some of the barriers to effective virtual team working and demonstrates the critical importance of trust and social bonding to the functioning of such teams. It reports on the use of a 'Community of Practice' in a virtual team and argues that this may provide one mechanism for overcoming some of the barriers. Finally, it argues that many of the problems stem from a lack of understanding of the new geography of the information economy and that, rather than accepting the notion that 'geography no longer matters', continued efforts must be made to understand the relationship between the physical world in which we live and the electronic world of virtual team working. Keywords: Virtual Teams, Communities of Practice, Globalisation, Teleworking, Electronic Space, Physical Space JEL: J24 O31 Date: 2005-04-07 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0504006&r=all 629. Knowledge Management: Are We Missing Something? Paul Hildreth (University of York UK) Peter Wright (University of York UK) Chris Kimble (University of York UK) As commercial organisations face up to modern pressures to downsize and outsource they have begun to realise that they have lost knowledge as people leave and take with them what they know. This knowledge is increasingly being recognised as an important resource and organisations are now taking steps to manage it. In addition, as the pressures for globalisation increase, collaboration and co-operation is becoming more distributed and international. Knowledge sharing in a distributed international environment is becoming an essential part of Knowledge Management KM), although this area does not yet appear to be given much attention. In this paper we make a distinction between hard and soft knowledge within an organisation and argue that much of what is called KM deals with hard knowledge and emphasises capture- codify-store. This is a major weakness of the current approach to KM, equating more with Information Management than Knowledge Management. Soft knowledge is concerned more with the social and cultural aspects of knowledge, its construction and the processes through which it is sustained and shared. This paper addresses this weakness by exploring the sharing of 'soft' knowledge using the concept of communities of practice. Keywords: Knowledge Management, Lost Knowledge, Distributed Working, Communities of Practice JEL: M12 O33 O34 Date: 2005-04-08 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0504007&r=all 630. Communities of Practice: Going One Step Too Far? Chris Kimble (University of York UK) Paul Hildreth (K-Now International) n the late 1990s, Knowledge Management (KM) and Communities of Practice (CoPs) seemed inseparable. CoPs appeared to offer the key to reversing the failure of some of the earlier technologically based attempts to manage knowledge. However, the original CoP concept was built around a very different set of principles to those put forward by the proponents of KM. This paper presents a critical review of some of the claims made for CoPs. It will address questions such as Are CoPs really suitable for use in a business setting? and Can a CoP ever be truly virtual? Keywords: Communities of Practice, Knowledge Management, Business Environment, Virtual Environment, Social Networks JEL: M12 Date: 2005-04-08 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0504008&r=all 631. Long–term Business Relationships between Consignor and Trucking Carrier in Japan Norihiro KASUGA (Nagasaki University) Akio Torii (Yokohama National University) In this paper, we have empirically analyzed the factors that lead to longer business relationships in the logistics industry. The main conclusions of this paper are summarized as follows. First, the terms of relationships observed between the consignors and the trucking carriers that receive consignment of the transportation of the consignor’s main products have significantly positive associations with the level of information exchanged and consignments of distribution processing operations proposed by the consignee. Transaction cost economics implies that long-term relationships facilitate investment in relation- specific assets so as to improve efficiency. Then, we have sound reason to assume that the content of the shared information and the equipment for distribution processing have a significantly relation-specific nature, and accumulation of the related human capital, such as skill in workers and know-how, is important to improve efficiency of the whole logistics system. At the same time, these assets may function as hostages to maintain the long- term relationships. In regard to all of these points, the same mechanism is at work as in the commercial distribution market. The second conclusion is that the long-term business relationship is affected by the demand volatility of the consignor’s product. Consignors who belong to industries with a large volatility of demand tend to rely on transportation services procured from spot logistics markets with a shorter contract term. This finding is also consistent with previous research in the commercial distribution market. These results suggest that the mechanism to minimize transaction costs by establishing long- term business relationships is likely to exist in the logistics market. This is the same mechanism which is pointed out in the commercial distribution market. Generally, assets consisting of a system with a network structure tend to be sunken. Therefore, in order to save coordination costs which are incurred to make the whole distribution market function efficiently, long-term business relationships are indispensable. Thus, relationships between companies in the logistics market are likely to be affected by the shortening of the delivery time in the commercial distribution market. Keywords: transaction cost, logistics, Japanese system, long- term relationship JEL: L Date: 2005-04-08 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0504009&r=all 632. Endogenous Antitrust: Cross-Country Evidence on the Impact of Competition-Enhancing Policies on Productivity Joan-Ramon Borrell (University of Barcelona) Mara Tolosa (University of Barcelona) This paper presents empirical evidence regarding the effect of simultaneous antitrust and trade policy on productivity. We find that treating antitrust across countries as an exogenous policy overestimates the impact of competition on productivity by as much as 18%. Keywords: Antitrust,Productivity,Political economy JEL: D7 L4 O4 Date: 2005-04-08 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0504010&r=all 633. Understanding Patents: The Role of R&D Funding Sources and the Patent Office Paroma Sanyal (Brandeis University) This paper analyzes the effects of different sources of R&D funding and patent office attributes on the patenting process. Another important contribution is modeling the effect of a random delay in the ‘pendency’ time as a stochastic process and quantifying its effect on patenting. The empirical estimation is based on four major industries – electronics, chemical and biology, transportation and aeronautics – for the time period 1976-1998. The primary results are: First, the source of R&D funding as well as performer (academic, federal and industry) has a differential effect on patenting. Second, the effects of some types of R&D and spillovers are different post-1990. Third, in the short run patenting is heavily influenced by patent office attributes. The state level analysis sheds light on the differing role of the federal government as an R&D performed and as a source of R&D funds for industry. The results contribute to a better understanding of the shortcomings in the formulation of science indicators. Keywords: Patents, Innovations, Federal v/s Private R&D JEL: O31 O34 O38 O39 Date: 2005-04-13 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0504012&r=all 634. Peanut Butter Patents Versus the New Economy: Does the Increased Rate of Patenting Signal More Invention or Just Lower Standards? Paroma Sanyal (Brandeis University) The rate of patenting in the U.S. has exploded in the last half of the 1990s. It is widely believed that the increase in patent grants is at least partly a result of the apparent decline in examination standards. There has been little exploration, however, of the theoretical prediction that a decline in examination standards would itself induce an increase in dubious applications. We estimate a simultaneous equation model, in which the number applications depend on the perceived rigor of the examination process, amongst other things and patent grants depend on the number and quality of applications. We have a multi-dimensional panel, with data on the application and grant rates for each year, countries of origin, and jurisdiction of examination. We find that a ‘loosening’ of the grants standards by one percent increases applications by 8 percent in the full sample and by 3 percent in the Non-US sample. This result points to the importance of accounting for the endogenous application response particularly for the US case. Controlling for this effect, we find that application elasticity of grants is around 0.124 for the full sample and 0.145 for the Non-US one, and is declining over time in both. In addition countries whose patent applications are more likely to be successful in the US are more likely to be successful in other countries as well. These findings confirm that inventors respond to increased likelihood of success at the patent office by filing more applications, but also confirm earlier findings that the surge in patenting in the US in the last two decades appears to be driven to a significant extent by an increase in the underlying invention rate. Keywords: Patents, Examination Standard JEL: L10 O31 O34 Date: 2005-04-13 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0504013&r=all 635. Deregulation, Restructuring and Changing R&D Paradigms in the US Electric Utility Industry Paroma Sanyal (Brandeis University) Linda R. Cohen (University of Califirnia, Irvine) This paper studies the impact of electricity deregulation and restructuring on research and development (R&D) expenditures of investor owned utilities. The differing pace of deregulation in the fifty states provides heterogeneity in institutional structure and competitive forces, and showcases the response of R&D funding to changing institutional environments. Based on a panel of all major investor-owned utilities from 1989-1997, this paper analyzes various political constraints, institutional change, and firm-specific financial and structural factors that have contributed to the decline of R&D expenditure in the U.S. electric utility industry. R&D is modeled as a two-stage process where firms first decide whether to invest in research depending on their critical mass and state characteristics, and then conditional on a positive decision, decide on the level of expenditure. A variation of the Heckman model is estimated in a panel data setting, allowing for separate effects of selection and intensity. The primary findings are: First, greater deregulation and competition has a positive effect on R&D whereas a higher probability of deregulation adversely affects research spending. The start date for retail competition and level and policies for stranded cost recovery do affect spending. Second, the response of R&D to financial and other firm attributes varies with the state of deregulation and provides insights into firm behavior in a regulated context. Third, the institutional and competitive factors interact in a way that suggest that full deregulation, coupled with effective retail competition may mitigate the problem of declining electricity R&D by the utilities. Keywords: Electricity Deregulation, Competition, R&D JEL: O30 O31 L50 L94 Date: 2005-04-13 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0504014&r=all 636. Powering a Green Progress: The Effect of Electricity Deregulation on Environmental Research Paroma Sanyal (Brandeis University) This paper analyzes the impact of changing market structure on environmental research expenditure by investor owned utilities in the US electricity sector for the period 1989-1997. The main finding suggests that after controlling for firm characteristics and the “greenness” of the state, deregulation decreases such R&D expenditure, while effective competition increases it. When these opposing trends are factored in, the empirical model estimates that for a one percent increase in overall market competition, environmental research declines by 1.1 percent. It also finds that environmental regulations like the Clean Air Act, can help stem the decline in environmental research even in the face of market restructuring and competition. Keywords: Electricity Deregulation, Environmental R&D, Clean Air Act JEL: O32 L94 L51 Date: 2005-04-13 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0504015&r=all 637. U.S. Domestic Airline Pricing, 1995-2004 Severin Borenstein (Haas School of Business, University of California, Berkeley) Between 1995 and 2004, I find that airline prices fell more than 20% adjusted for inflation. I also show that premia at hub airports declined and that there is now substantially less disparity between the cheaper and more expensive airports than there was a decade ago. Still, I find that prices remain quite high at a few dominated airports. Keywords: Airline Competition, Airline Hubs, Price Indices JEL: L13 L93 E31 Date: 2005-04-14 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0504016&r=all 638. Deconstructing Chicago on Exclusive Dealing Joseph Farrell (Department of Economics, University of California at Berkeley) While exclusive dealing can be efficient, the Chicago School has also argued that it cannot be anticompetitive, or that it seldom is. That argument takes two forms; both are weak. First, a pricetheory argument (“the Chicago Three-Party Argument”) depends crucially on a special model of oligopoly and predicts that we will never see what we see. I show how simply replacing the embedded oligopoly model suggests new efficiency and anticompetitive motives for exclusive dealing; these motives differ markedly from those usually discussed. Second, “the Chicago Vertical Question” is a challenge to theories of anticompetitive vertical practices, including exclusive dealing. While that Question is salutary and helpful, its apparent force dissipates if we pay careful attention to externalities, as others have noted, and to the issue of alternatives versus benchmarks, as I describe below. Overall, economic logic does not support any general presumption that exclusive dealing is efficient. Keywords: Exclusive dealing, vertical restraints, monopoly, antitrust JEL: L Date: 2005-04-14 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0504017&r=all 639. Innocent or not-so-innocent bystanders: evidence from the gravity model of international trade about the effects of UN sanctions on neighbor countries Slavi T. Slavov (Pomona College) This paper examines two theories about the effects of UN sanctions on trade flows between land neighbors of the target country and the rest of the world. First, there have been claims that sanctions hurt neighbor countries by cutting off trading routes, increasing transportation costs, and disrupting established trading ties. We would expect that a neighbor’s trade with the rest of the world would fall, as a result. Second, there is extensive evidence that neighbors have been heavily involved in smuggling. As a result, neighbors should trade more with the rest of the world during UN trade embargoes, because now they also trade on behalf of the target. I employ the gravity model of international trade to show that, overall, a neighbor’s trade with the rest of the world tends to fall during UN sanctions episodes. This confirms the first claim above: overall, land neighbors have been “innocent bystanders” hit by UN sanctions. JEL: F1 Date: 2005-01-23 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpit:0501007&r=all 640. Levels of Economic Development and the Harrod Foreign Trade Gairuzazmi Ghani (USC) Estimates of export and import demand functions for ninety countries using Stock and Watson (1993) Dynamic OLS are presented. These estimates are then used to examine the relationship between levels of economic development and the dynamic Harrod foreign trade multiplier. We show that there is an inverted U- shape relation, as predicted by Thirlwall (1997), contrary to Bairam (1993, 1997). The absence of an inverse relation between levels of economic development and the dynamic Harrod foreign trade multiplier means that Thirlwall's law implies divergence. Keywords: Harrod foreign trade multiplier, Thirlwall Law, Trade elaticities JEL: F1 F2 Date: 2005-01-25 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpit:0501008&r=all 641. Capacity Choice, Foreign Trade and Exchange Rates Alpay Filiztekin (Sabanci University) Benan Z. Orbay (Istanbul Technical University) We investigate the effects of exchange rate movements on investment decisions of firms in an oligopolistic market. In a two-country-world model, we focus on the capacity investment decisions of small (small initial capacity and high marginal cost) and large (large initial capacity and low marginal cost) domestic firms. Both type of firms use foreign inputs in production and sell their output in the foreign market, thus they are prone to changes in exchange rate from both cost and demand side. Results show that devaluations alter the composition of production and the relative share of small and inefficient firms at the expense of large and efficient firms in the economy. The investment response to exchange rates is more pronounced in more competitive markets. Keywords: Capacity investment, exchange rates, market structure. JEL: F1 F2 Date: 2005-01-28 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpit:0501009&r=all 642. Proliferating Regional Trade Arrangements: Why and Whither? Jong-Wha Lee (Korea University) Innwon Park (Korea University) Kwanho Shin (Korea University) This paper investigates why regional trade arrangements (RTAs) are proliferating extensively and how the effects of multiple RTAs, by interacting with each other, evolve over time. Our empirical analysis, based on an extended gravity model utilizing a large panel data set of 175 countries from 1948 to 1999, shows that RTAs on average increase global trade by raising intra-bloc trade without damaging extra-bloc trade. The net trade effects, however, heavily depend on the types of RTA strategic evolution over time, which we group as ?°expansionary?± RTAs, ?°duplicate?± RTAs or ?°overlapping?± RTAs. We find that countries excluded from an RTA can benefit more from duplicating a separate RTA than from joining an existing RTA. This result explains why the number of bilateral trade blocs, rather than the membership size of existing RTAs, is currently exploding. We also find that the net trade creation effects of RTAs are substantially lower for countries participating in overlapping RTAs. This result suggests that it is less likely that the currently proliferating RTAs will completely merge and lead the world economy to global free trade. Our empirical results are robust to controlling for the characteristics of countries that may influence the impact of RTAs. Keywords: RTA, Global Trade, Regional Trade, Trade Creation, Trade Diversion JEL: F1 F2 Date: 2005-01-28 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpit:0501010&r=all 643. The Effects of Foreign Trade Liberalization and Financial Flows between Slovenia and the EU after the Accession Boris Majcen (Institute for Economic Research Ljubljana) Miroslav Verbic (Institute for Economic Research Ljubljana) Sasa Knezevic (Institute for Economic Research Ljubljana) The new version of the CGE model of the Slovenian economy, based on the 1998 SAM, was used for simulations of the consequences of further foreign trade liberalization after 1998 as the outcome of the finished processes of implementation of Free Trade Agreements and the European Agreement, adaptation of the Customs Tariff to the EU Common External Tariff for the manufacturing products, adoption of the EU Common External Tariff after the accession of Slovenia to the EU as well as the estimated transfers between both budgets. Results obtained show a positive net outcome of the Slovenian accession to the EU in the long run. On the other hand, rational behaviour of the government will certainly moderate possible short run negative effects and improve favourable long run effects. Keywords: Computable General Equilibrium Model, EU-Accession, Financial Flows, Trade Liberalization, Transition Country, Regionalism JEL: D58 F15 F43 E2 Date: 2005-01-29 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpit:0501011&r=all 644. Endogenous Growth Models in Open Economies: A Possibility of Permanent Current Account Deficits Taiji Harashima (University of Tsukuba & Cabinet Office of Japan) The paper explores the impacts of heterogeneity in degree of relative risk aversion on the balance on current account in a two- country endogenous growth model. It concludes that, like the heterogeneity of demographic changes, the heterogeneity in degree of relative risk aversion generates persisting current account deficits. The deficit continues permanently, but its ratio to output stabilizes. With evidence that the degree of relative risk aversion in Japan is relatively higher than that in the U.S., there is a possibility that the persisting bilateral trade deficit of the U.S. with Japan is partially generated by this mechanism. Keywords: Current account; Trade deficits; Capital flows; Endogenous growth; Risk aversion JEL: F41 F21 F43 O40 E10 Date: 2005-02-01 Date: 2005-02-10 Date: 2005-03-01 Date: 2005-03-02 Date: 2005-03-09 Date: 2005-03-30 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpit:0502001&r=all 645. Agricultural Exporters in a Protectionist World: Review and Policy Implications of Barriers Against Mercosur Julio J. Nogues (Universidad Di Tella) Keywords: Mercosur, Agricultural Protectionism, Doha Round, Regional Negotiations JEL: F1 F2 Date: 2005-02-08 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpit:0502002&r=all 646. Reciprocity in the FTAA: The Roles of Market Access, Institutions and Negotiating Capacity Julio J. Nogues Latin America will support the FTAA if it sees this project as a way of creating the conditions for improved growth performance and declining poverty. In searching for these objectives with effectiveness, this paper calls attention to some of the conditions that are necessary in order for individual countries to internalize benefits from the FTAA. I focus attention on the negotiations between Latin America and the United States because according to existing knowledge on the determinants of growth and convergence, it is the outcome of this exchange of concessions that holds the promise of the most significant gains for Latin America. This paper argues that such a convergence is more likely to take place if: (1) the outcome of these negotiations is characterized by a reciprocal and a significant exchange of market access concessions and, (2) Latin American countries strengthen some of their fundamental economic policies and institutions. Keywords: FTAA, Reciprocity, Intellectual Property JEL: F1 F2 Date: 2005-02-08 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpit:0502003&r=all 647. MERCOSUR’s Labyrinth and World Regionalism Julio J. Nogues (Universidad Di Tella) Regional trade agreements are more likely to produce negative effects on nonmembers the larger and the more protected they are. Because MERCOSUR countries are efficient producers of the most protected products in the world –agricultural and agro- industrial products-, these countries suffer particularly from other countries regional agreements. Finally, these costs are likely to increase with the number of regional agreements in which they are not members. The arguments and estimates presented in this paper support these assertions. Keywords: Mercosur, Trade diversion, Agricultural protection JEL: F1 F2 Date: 2005-02-08 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpit:0502004&r=all 648. US Contingent Protection Against Honey Imports: Development Aspects and the Doha Round Julio J. Nogues (Universidad Di Tella) On December 10, 2001 the US Department of Commerce announced the imposition of steep antidumping duties against honey imports from Argentina and China ranging from 32.6% to 183.8%, and a countervailing duty against Argentina of 5.9%. A previous AD investigation was concluded in 1995 with a uspension “agreement” that curtailed US imports from China by around 30%. Millions of beekeepers around the world most of them poor, are making a living from honey production and for them, a free and competitive world market would strengthen their possibilities of raising their standards of living. Nevertheless, the sequential pattern of increasing and widening protectionism followed by the US, the world top importer, to include successful exporters under the effects of its contingent protection measures, sends a clear message that other countries should think twice before investing in expanding honey exports to the US. Keywords: Antidumping, Poverty, Doha Round JEL: F1 F2 Date: 2005-02-08 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpit:0502005&r=all 649. Issues on Agricultural Negotiations in the FTAA and Linkages With the Doha Round Julio J. Nogues (Universidad Di Tella) An FTAA that provides gains to all participants remains a major challenge for LA. Given the demanding pre-conditions required in these and other negotiations with industrial countries, I am unsure whether all LA countries will be able to confront this challenge successfully. It is of paramount importance that Governments can document clear net gains to their societies, because otherwise a few years down the road, regional relations may become soured by an under-performing FTAA. Keywords: Latin America, FTAA negotiations, Agricultural protectionism JEL: F1 F2 Date: 2005-02-08 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpit:0502006&r=all 650. Unequal Exchange: Developing Countries in the International Trade Negotiations Julio J. Nogues (Universidad Di Tella) The outcome of the Uruguay Round show that the concessions given by developing countries were more valuable than those they received from industrial countries. I suggest that this outcome is explained by the aggresive demands from industrial countries and the lack of resources (human and financial) at the disposal of developing countries. The paper discussess the costs of these unequal exchanges, and the structural factors that help to understand the processess leading to these outcomes. Keywords: Uruguay Round, Developing countries, Reciprocity, JEL: F1 F2 Date: 2005-02-08 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpit:0502008&r=all 651. Argentina Julio J. Nogues (Universidad Di Tella) After decades of being a marginal player in the GATT trade negotiations, Argentina decided to participate actively in the Uruguay Round. This chapter measures the imbalance between the concessions given and received and concludes that the value of the first are far more important than the second. I discusss the economic consequence of this imbalance, and the prospects that the outcome of the Doha Round can be more balanced outcome for Argentina. Keywords: Argentina, GATT, Uruguay Round, Reciprocity, Intellectual Property JEL: F1 F2 Date: 2005-02-09 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpit:0502009&r=all 652. The Unbalanced Uruguay Round Outcome: The New Areas in Future WTO Negotiations J. Michael Finger (Vernon Taylor Professor of Economics, Trinity University) Julio J. Nogues (Universidad Di Tella) The Uruguay Round involved a grand North-South bargain: The North reduced import barriers, particularly in textiles and agriculture. The South adopted new domestic regulations in such areas as services and intellectual property—changes that would lead to increased purchases from the North. In mercantilist economics, apples for apples—imports for imports. In real economics, apples for oranges. Finger and Nogues argue that while the North’s reduction of import barriers benefits both the North and the South, the new domestic regulations adopted by countries of the South could prove costly to those countries. To begin with, the regulations will be expensive to implement. And while the cost side of their impact is secured by a legal obligation (in the case of intellectual property rights, for example, the cost is higher prices for patented goods), the benefits side is not so secured. Keywords: Uruguay Round, Services negotiations, Doha Round reciprocity JEL: F1 F2 Date: 2005-02-09 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpit:0502010&r=all 653. Unequal Exchange: Developing Countries in the International Trade Negotiations Julio J. Nogues (Universidad Di Tella) The results of the Uruguay Round, show that the concessions given by developing countries were generally more valuable than those they received from industrial countries. I suggest that this outcome is explained by aggressive demands from industrial countries, and by the lack of resources at the disposal of developing countries. These and other “structural factors”, weaken the negotiating capacity of developing countries and the outcome of their bargaining, is likely to be an “unequal exchange of concessions”. The paper discussess the costs of these exchanges, and the structural factors that help to understand the processes leading to these outcomes. Keywords: Uruguay Round, Multilateral Negotiations, Developing countries, Unbalanced reciprocity JEL: F1 F2 Date: 2005-02-09 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpit:0502011&r=all 654. Does tariff liberalization increase wage inequality? Some empirical evidence Branko Milanovic (Carnegie Endowment/World Bank) Lyn Squire (Global Development Network) The objective of the paper is to answer an often-asked question : if tariff rates are reduced, what will happen to wage inequality We consider two types of wage inequality : between occupations ( skills premium), and between industries. We use two large data bases of wage inequality that have become recently available and a large dataset of average tariff rates all covering the period between 1980 and 2000. We find that tariff reduction is associated with higher inter-occupational and inter-industry inequality in poorer countries (those below the world median income) and the reverse in richer countries. The results for inter-occupational inequality though must be treated with caution. Keywords: tariffs, trade, liberalization, wages, inequality JEL: F1 F13 D31 J31 Date: 2005-02-11 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpit:0502012&r=all 655. EQUILIBRIUM REAL EXCHANGE RATE IN BRAZIL ESTIMATION AND POLICY IMPLICATIONS Thierry Buchs This paper examines the determinants of the real effective exchange rate (REER) in Brazil, from 1994 to 2003. Building on a standard theoretical model and based on the Johansen cointegration estimation, the main finding is that much of the long-run behavior of the REER can be explained by relative productivity differentials, real commodity prices, government expenditures on tradables and non-tradables, trade openness and real interest differentials. On the basis of these fundamentals, the level of misalignment of the Real was found to be surprisingly modest during the Real Plan (1994-1998). As of end 2003, the Real was found to be slightly appreciated with respect to the estimated equilibrium level, although the extent of the misalignment appears to be small as well. The paper also discusses the implications of these findings with regard to trade competitiveness. Keywords: Brazil, Real Exchange Rate, Trade JEL: F13 F31 F41 Date: 2005-02-23 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpit:0502013&r=all 656. The Challenge of Reforming the WTO Dispute Settlement Understanding Heinz Hauser (Swiss Institute for International Economics & Applied Economic Research, University of St. Gallen SIAW- HSG) Thomas A. Zimmermann (Swiss Institute for International Economics & Applied Economic Research, University of St. Gallen SIAW-HSG) The May 2003 deadline for the completion of the negotiations on improvements and clarifications of the Dispute Settlement Understanding (DSU) under the Doha Mandate has not been met. However, Members agreed in July 2003 to extend the deadline for the review until the end of May 2004. This article briefly summarises the past six years of negotiations on the DSU review, the most contentious issues and the systemic difficulties of the negotiations. We conclude with prospects for the forthcoming negotiations until 2004. Keywords: WTO Dispute Settlement Understanding DSU Review JEL: F1 F2 Date: 2005-02-27 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpit:0502014&r=all 657. Gewahrleisten umgesetzte WTO-Streitschlichtungsurteile offene Markte? Eine Betrachtung am Beispiel des Zeitschriftenfalles Thomas A. Zimmermann (Swiss Institute for International Economics & Applied Economic Research, University of St. Gallen SIAW-HSG) Theoretical analyses of the WTO dispute settlement mechanism suggest that the system contains only weak incentives for the implementation of rulings. Against this background, it is puzzling that the specific WTO procedure which deals with allegedly insufficient implementation is used only in about one third of the cases where the need for implementation has arisen. Yet, a closer look at the where implementation has allegedly occurred can partly resolve this puzzle: The defendant government implemented the rulings by modifying or repealing the contemplated measures. At the same time, however, it resorted to alternative measures in order to keep the market closed. Some market opening occurred only after the conclusion of the multilateral procedure within bilateral negotiations and in areas which have not been subject to the multilateral dispute. This leads to the hypothesis that the role of the multilateral dispute settlement system could be less important than is generally accepted today. Note: The downloadable document is in German. Keywords: Protectionism, WTO Dispute Settlement, Implementation JEL: F1 F2 Date: 2005-02-27 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpit:0502015&r=all 658. China's Changing Competitive Position: Lessons from a Unit- Labor- Cost-Based REER Sebastian Dullien (Financial Times Deutschland) This paper calculates a unit labor-cost based real effective exchange rate for China for the period 1987-2002. It examines carefully which data sources can be used given the known limitations of Chinese data and constructs to them together with internationally available unit labor cost estimations for a number of industrialized countries, including Korea and Taiwan. It is found that gauged by the ULC measure the increase in manufacturing competitiveness from the late 1980s to the mid 1990s has been even more remarkably than given known industrial- price- based measures for real effective exchange rates suggest. However, since then, Chinese manufacturers have lost more ground than previously thought. Keywords: China, international competitiveness, real exchange rate JEL: F14 F16 Date: 2005-02-28 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpit:0502016&r=all 659. TRENDS AND FLUCTUATIONS IN BRAZILIAN AND ARGENTINE TRADE FLOWS Nelson H. Barbosa-Filho (Institute of Economics, Federal University of Rio de Janeiro) This paper analyzes the trends and fluctuations of the price and real indexes of Brazilian and Argentine exports and imports in 1980-2002. The analysis uses quarterly data and obtains the trend and fluctuations by applying either the Hodrick-Prescott or the band-pass filter (with periodicity between 1.5 and 8 years) to the original series. The main statistical findings are that: (i) even though the fluctuations of the export and import prices of the two countries are highly correlated, their terms of trade are not because the export price of one country is also highly correlated with the import price of the other country; (ii) in both countries the fluctuations of real imports basically follow the fluctuations of real GDP; and (iii) fluctuations of Brazilian GDP and real imports are highly correlated and seem to lead fluctuations of Argentine exports. To obtain these results the paper analyzes the lead, lag and contemporaneous correlation between the series in question and applies the Granger causality test to investigate whether or not one variable helps to explain the other statistically. The statistical results for the fluctuations are robust for both filters. The trends are also basically the same independently of the filter used and, overall, they seem to converge in the late 1990s. The main policy implication is that exchange-rate coordination may be useful to compensate or smooth the adjustment of the two countries to terms- of-trade shocks, provided that the managed float is flexible enough to allow the bilateral real exchange rate to change according to which country is most affected by the shock. On the real side, synchronization of real GDP would lead to synchronization of real imports, whereas exchange-rate coordination may eliminate the swings of the bilateral real exchange rate between Brazil and Argentina, which is one of the sources of their desynchronized export fluctuations. Keywords: Brazil, Argentina, Trade JEL: F1 F2 Date: 2005-03-04 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpit:0503001&r=all 660. TERMS-OF-TRADE FLUCTUATIONS AND THEIR IMPLICATIONS FOR EXCHANGE- RATE COORDINATION IN MERCOSUR Nelson H. Barbosa-Filho (Institute of Economics, Federal University of Rio de Janeiro) This paper presents the correlation between the annual fluctuations of the terms of trade of Brazil, Argentina, Uruguay and Paraguay. The period under analysis is 1980-2001 and the main findings are that the four countries have a high to moderate synchronization of their export prices, a moderate to low synchronization of their import prices, and a low synchronization of their terms of trade. The small positive correlation between the growth rates of the terms of trade of Brazil and Argentina (0. 24) support exchange rate coordination between the two countries, provided that their bilateral real exchange rate is allowed to fluctuate temporarily to accommodate possible differences between the intensity of shocks across them. For instance, given an adverse shock to Brazil, both the Brazilian and Argentine real exchange rates against the rest of the world (domestic good per unit of foreign good) should increase to avoid a reduction, or smooth the variation, of their trade balances, but the Argentine currency should appreciate against the Brazilian currency in real terms because Argentina tends to be less affected by the shock. The observed correlations indicate that, through a joint and flexible managed float of their currencies, Argentina and Brazil may be able to share the benefits and costs of terms-of-trade shocks without imposing major macroeconomic disruptions on each other. In such an arrangement and also based on the observed correlations, Uruguay may either follow Argentina, when the terms- of-trade shock is more intense to Brazil, or do nothing, when the shock is more intense to Argentina. In contrast, Paraguay should follow Brazil, when the terms- of-trade shock is more intense to Argentina, or do nothing, when the shock is more intense to Brazil. Because of the low correlation between the terms-of-trade fluctuations of Brazil and Argentina, the best form of exchange- rate coordination for the near future seems to be a Mercosur version of the European Monetary System of 1979-98, that is, a wide interval of fluctuation for the regional currencies around a common and competitive real exchange rate against the rest of the world. Keywords: Mercosur, Trade, Exchange-Rate Coordination JEL: F1 F2 Date: 2005-03-04 Date: 2005-03-22 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpit:0503002&r=all 661. The Political Economy of Trade Policy: Empirical Approaches kishore gawande (texas a&m u.) pravin krishna (Johns hopkins u.) In order to explain the prevalence and persistence of trade protection, a large body of work that departs from the notion of welfare maximizing governments and emphasizes instead political- economic determinants of policy has recently emerged. This survey paper summarizes and evaluates analytically the empirical component of this literature. We discuss a broad set of empirical findings which provide a convincing confirmation of the presence and significance of political economy influences. We also discuss some puzzles and controversies that have emerged in recent work. JEL: D72 D78 F12 F13 F14 Date: 2005-03-09 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpit:0503003&r=all 662. An Econometric Analysis of Foreign Direct Investment Flows into Turkey from Major Global Regions: 1975-1999 Ferda Halicioglu (The University of Greenwich, London) This paper analyses the determinants of inward foreign direct investment (FDI) flows into Turkey from four major geographical regions and at aggregate level with a special emphasis on Turkey’s application to the European Union (EU) to become a full member in 1987. In contrast to previous studies this paper divides the inward FDI flows into Turkey from four major trading blocks and estimates separate FDI function for each region in addition to the aggregate FDI function. It is found that Turkey has experienced both “investment creation and diversion” effects as a result of her membership application to the EU in addition to the market size hypothesis. This paper also compares and contrasts the short and long run FDI functions of Turkey by the source of geographical regions and at aggregate level and draws conclusions from there. Keywords: foreign direct investment, investment creation and diversion, Turkey and the EU, economic integration. JEL: F15 F21 C32 Date: 2005-03-11 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpit:0503004&r=all 663. AN ARDL MODEL OF AGGREGATE TOURISM DEMAND FOR TURKEY Ferda Halicioglu (The University of Greenwich, London) This study empirically examines aggregate tourism demand function for Turkey using the time series data for the period 1960-2002. The total tourist arrivals into Turkey are related to world income, relative prices and transportation cost. We employ bounds testing cointegration procedure proposed by Pesaran et al. 2001) to compute the short and long-run elasticities of income, price, and transportation cost variables. We also implement CUSUM and CUSUMSQ stability tests on the aggregate tourism demand function. The empirical results indicate that income is the most significant variable in explaining the total tourist arrivals to Turkey and there exists a stable tourism demand function. JEL: F1 F2 Date: 2005-03-11 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpit:0503005&r=all 664. The Influences in Changes in Macroeconomic Regime and Policy on the Development of the Foreign Trade of Serbia Danica Popovic (Faculty of Economics & CLDS) Both before and after the UN trade embargo (1992-1995), the foreign trade policy of FR Yugoslavia has been highly autarchic. Until the disingegraditon of SFRY this resulted in a significant underperformance of the foreign trade sector, while later this turned out to (almost) a complete halt in regular foreign trading. The key for boosting foreign trade lies in implementing institutional reforms and liberalization of foreign trade, even prior to the start of a credible mass privatization. This would be the only way to avoid creation of unproductive private monopolies and might present a way out of permanent recession of the Serbian economy. JEL: F1 F2 Date: 2005-03-14 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpit:0503006&r=all 665. FOREIGN TRADE INSTITUTIONS AND POLICIES - The Case of FR Yugoslavia Danica Popovic (Faculty of Economics & CLDS) This study is divided in ten sections. The first three sections are devoted to macroeconomic performance of the economy in the 1990s, followed by the analysis of contemporary foreign trade performance and institutions. The overall and dramatic decay starting from 1990 is registered in all topics abovementioned. The next three sections are devoted to foreign trade policies toward imports, exports and domestic competition. A significant improvement in foreign trade policies is registered, but a need for further liberalization is also stressed upon, particularly regarding the abolition of statistical fee, and further reduction and simplification of tariffs. The implementation of safeguards and antidumping policies has not started as yet, mostly for the lack of professional skills in the area. The highly monopolized structures of Yugoslav economy will presumably stay at least while the privatization procedure is not completed in a substantial degree. As far as regulations of entry and domestic competition are concerned, no serious formal impediments can be traced. Since corruption and cronyism are still widespread (not only in foreign trading but in judicary system etc) informal impediments to competing on domestic market are still present. The last three sections are focused on the political economy of trade policy, problems of market access on the EU and other markets. JEL: F1 F2 Date: 2005-03-14 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpit:0503007&r=all 666. Trade Liberalization and Compensation Carl Davidson (Michigan State University) Steven Matusz (Michigan State University) Liberalization harms some groups while generating aggregate benefits. We consider various labor market policies that might be used to compensate those who lose from freer trade. Our goal is to find the policy that compensates each group of losers at the lowest cost to the economy. We argue that wage subsidies should be used to compensate those who bear the adjustment costs triggered by liberalization while employment subsidies should be used to compensate those who remain trapped in the previously protected sector. Our analysis indicates that the cost of compensation is low, provided that the right policy is used. Keywords: International Trade, Liberalization, Compensation, Labor Market Policies JEL: F1 F2 Date: 2005-03-15 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpit:0503008&r=all 667. Trade and Turnover: Theory and Evidence Carl Davidson (Michigan State University) Steven Matusz (Michigan State University) Is the pattern of trade correlated with cross-sector differences in job turnover? Theoretically, external shocks feed through to changes in domestic employment and cross-sector differences in turnover give rise to compensating wage differentials, which feed through to output prices. Using two different data sets on turnover, we find strong evidence that normalized US net exports by sector are negatively correlated with job destruction and worker separation rates. Weaker evidence suggests a positive correlation with between normalized net exports and job acquisition. Using sector-specific job destruction data for both Canada and the US, we find confirmation of the theoretical prediction that normalized net exports to Canada are negatively related to the ratio of the US job destruction rate to the Canadian job destruction rate. Keywords: Job Creation, Job Destruction, Trade, Labor JEL: F16 Date: 2005-03-15 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpit:0503009&r=all 668. Trade, Turnover, and Tithing Christopher Magee (Bucknell University) Carl Davidson (Michigan State University) Steven Matusz (Michigan State University) This paper examines the hypothesis that turnover affects trade preferences. High turnover industries are similar to the Stolper- Samuelson assumption of perfect factor mobility, so factor of production drives trade preferences. Among low turnover industries, as in the specific factors model, net export position determines trade preferences. We show that PAC contribution patterns are consistent with this hypothesis. In high turnover industries, capital groups give significantly larger shares of their campaign contributions to free trade supporters than labor groups do. Among low turnover industries, on the other hand, exporting and import-competing groups differ significantly in their financial support for free traders. Keywords: Trade Preferences, Trade and Wages, Campaign Contributions, Stolper-Samuelson, Specific Factors JEL: F10 F11 F16 Date: 2005-03-15 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpit:0503010&r=all 669. Crise Financeira Russa Bruno Marques Pinto (Undergraduate School of Economics, Getulio Vargas Foundation Brazil) Thais Vilela (Undergraduate School of Economics, Getulio Vargas Foundation Brazil) Ursula Silveira de Lima (Undergraduate School of Economics, Getulio Vargas Foundation Brazil) Fundamental sources of the Russian financial crisis in 1998 are discussed. Focus is made on the time horizon of judgements concerning sustainability of the economic policy. It is argued that the macroeconomic policy pursued by the monetary authorities was not robust in a medium run, but, in the absence of external shocks was far from the crisis area, and required moderate, feasible modifications to be viable in a medium run. After the sharp deterioration in the terms of trade the previously pursued policy was no more sustainable even in a short run. The implications of the crisis were aggravated by the overly optimistic expectations by the monetary authorities of the near- term recovery in the terms of trade. Keywords: Russia, Financial Crisis, Crise Cambial JEL: F1 F2 Date: 2005-04-05 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpit:0504001&r=all 670. Trade Flows among CEEC and EU Countries: what future perspectives? Jose Caetano (University of Evora) Aurora Galego (University of Evora) The Eastern enlargement represents an opportunity for trade expansion for all the countries involved. In fact, trade between the EU and the Central Eastern European Countries (CEEC) has grown considerably in the nineties, coinciding with the transition period and the preparation of the CEEC to full- membership. In this paper we analyse the characteristics and evolution of the EU- CEEC trade in the last decade and study the potential bilateral trade flows between the EU and the CEEC. In particular, besides analysing trade relations between CEEC and the EU, we will study trade developments among the CEEC. Moreover, we will take into consideration the sectoral dimension in the analysis. The analysis is based on the gravity model approach using panel data from 1993 to 2001. It is possible to conclude that there is still scope for further expansion of the trade flows between some CEEC and some of the EU countries. Furthermore, there is scope for growth on trade flows among the CEEC, due to the fact that EU membership will promote complete trade liberalisation among these countries. Keywords: Trade, EU enlargement, Gravity Models JEL: F1 F2 Date: 2005-04-07 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpit:0504002&r=all 671. WTO Dispute Settlement at Ten: Evolution, Experiences, and Evaluation Thomas A. Zimmermann (Swiss Institute for International Economics & Applied Economic Research SIAW-HSG) ENGLISH ABSTRACT: On 1 January 1995, the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) entered into force. During its first ten years, the DSU has since been applied to 324 complaints – more cases than dispute settlement under the GATT 1947 had dealt with in nearly five decades. The system is perceived, both by practitioners and in academic literature, to work generally well. However, it has also revealed some flaws. Negotiations to review and reform the DSU have been taking place since 1997 (“DSU review”), however, without yielding any result so far. In the meantime, WTO Members and adjudicating bodies managed to develop the system further through evolving practice. While this approach may remedy some practical shortcomings of the DSU text, the more profound imbalance between relatively efficient judicial decisionmaking in the WTO (as incorporated in the DSU) and nearly blocked political decisionmaking evolves into a serious challenge to the sustainability of the system. This article provides an overview of the first ten years of DSU practice, the on- going DSU review negotiations, and the challenges to the dispute settlement system. GERMAN ABSTRACT: Am 1. Januar 1995 trat das Ubereinkommen uber Regeln und Verfahren fur die Streitschlichtung (Dispute Settlement Understanding; DSU) als Teil des WTO-Abkommens in Kraft. In den ersten zehn Jahren seines Bestehens fand das DSU auf 324 Klagebegehren Anwendung – mehr Falle, als unter den Streitschlichtungsregeln des GATT 1947 in dessen nahezu funfzigjahriger Geschichte behandelt wurden. Die Funktionsweise des Systems wird sowohl in der handelspolitischen Praxis als auch in der wissenschaftlichen Literatur als gut eingestuft. Gleichwohl hat der Mechanismus in seiner Anwendung auch einige Schwachen offenbart. Diese sollen auf dem Verhandlungswege ( „DSU Review“) behoben werden, doch blieben die seit Ende 1997 laufenden Gesprache bislang erfolglos. Zugleich ist es den Mitgliedstaaten und den Spruchorganen aber stellenweise gelungen, das System im Rahmen der praktischen Anwendung fortzuentwickeln. Wahrend auf diesem Weg einige praktische Probleme des Verfahrenstextes behoben werden konnten, durfte das betrachtliche Ungleichgewicht in der WTO zwischen einem vergleichsweise effizienten juristischen Entscheidungsmechanismus in Form des DSU) und den haufig blockierten politischen Entscheidungsmechanismen fortbestehen. Dieses Ungleichgewicht bedroht die Systemnachhaltigkeit. Der vorliegende Artikel gibt einen Uberblick uber die ersten zehn Jahre DSU-Praxis, die laufenden DSU-Review-Verhandlungen sowie einen Ausblick auf zukunftige Herausforderungen. Keywords: WTO, Dispute Settlement, DSU Review Negotiations JEL: F02 F13 K33 K41 Date: 2005-04-08 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpit:0504003&r=all 672. Gains from Synchronization William Barnett (University of Kansas) Mehmet Dalkir (University of Kansas) This paper investigates the transmission mechanisms of noise and volatility between economies through trade links, and the effects of synchronization on business cycles. We investigate the transmission of outside noise and the fluctuations that the noise generates. We identify conditions under which international economic links reduce the economic output noise emanating from noise within the individual economies. Under certain conditions, devaluation of a country's currency causes reduction in the business cycle noise and volatility as seen by that country's exporters, while increased valuation of a country's currency produces higher noise and volatility, as seen by the country's importers. Keywords: business cycles, synchronization, international trade, stochastic systems JEL: D5 D9 E Date: 2005-04-12 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpit:0504004&r=all 673. Which Human Capital Matters for Rich and Poor’s Wages? Evidence from Matched Worker-Firm Data from Tunisia Christophe Muller (Universidad de Alicante) Christophe Nordman (IRD-DIAL) In this paper, we study the return to human capital variables for wages of workers observed in Tunisian matched worker-firm data in 1999. This tells us how returns to human capital in a Less Developed Country like Tunisia differ from the industrial countries usually studied with matched data. We develop a new method based on multivariate analysis of firm characteristics, which allows us most of the benefits obtained by introducing firm dummies in wage equations for studying the effect of education. It also provides a human capital interpretation of the effect of these dummy variables. Moreover, in the studied data, using three firm characteristics easily collectable yields results close to those obtained by using the matched structure of the data. The workers with low wages or low conditional wages experience greater returns to human capital than workers belonging to the middle of the wage distribution, while their return to schooling is significantly lower than that of high wage workers. Wage regressions including the computed factors confirm that human capital is associated with positive intra-firm externality on wages. Therefore, a given worker would be more productive and better paid in an environment strongly endowed in human capital. However, the poorest workers do not take advantage of the human capital in the firm. Conversely, the poor benefit from working in the textile sector in terms of wages unlike the middle and high wage workers. Finally, the poorest and richest workers benefit from an innovative environment while the middle workers of the wage distribution do not. Keywords: wage, returns to human capital, matched worker-firm data, quantile regressions, factor analysis, Tunisia JEL: J24 J31 O12 Date: 2005-01-24 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpla:0501009&r=all 674. Why Are Promotions Less Likely in Nonprofit Firms? Jed DeVaro (Cornell University) Dana Samuelson (Cornell University) We use data from the Multi-City Study of Urban Inequality (MCSUI) employer survey to document a new empirical finding that workers are less likely to receive promotions in nonprofit firms than in for-profit firms. We propose an incentives-based explanation for this result and offer empirical evidence that is consistent with our hypothesis. At the heart of our explanation is a tradeoff between the incentive-provision and job-assignment roles of promotions. While for-profit firms must rely on promotions to serve both purposes, presumably achieving neither perfectly, we argue that nonprofits have the luxury of using promotions predominantly to achieve optimal job assignment. We conjecture that incentive creation may be less of a concern in nonprofit firms, where workers self-select and are often intrinsically motivated by interest in the firm’s output, thus allowing promotions to be used mainly to achieve efficient job assignments. JEL: J Date: 2005-01-24 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpla:0501010&r=all 675. The effect of work on mental health: Does occupation Matter? Ana Llena-Nozal (Free University Amsterdam) Maarten Lindeboom (Free University Amsterdam) France Portrait (Free University Amsterdam) Keywords: mental health panel data model labour market status occupation JEL: J Date: 2005-01-25 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpla:0501011&r=all 676. Does tariff liberalization increase wage inequality? Some empirical evidence Branko Milanovic (Carnegie Endowment for International Peace) Lyn Squire (Global Development Network) The objective of the paper is to answer an often-asked question : if tariff rates are reduced, what will happen to wage inequality We consider two types of wage inequality : between occupations ( skills premium), and between industries. We use two large data bases of wage inequality that have become recently available and a large dataset of average tariff rates all covering the period between 1980 and 2000. We find that tariff reduction is associated with higher inter-occupational and inter-industry inequality in poorer countries (those below the world median income) and the reverse in richer countries. The results for inter-occupational inequality though must be treated with caution. Keywords: tariffs, trade, liberalization, wages, inequality JEL: F1 F13 D31 J31 Date: 2005-01-27 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpla:0501012&r=all 677. Social Networks and Their Impact on the Employment and Earnings of Mexican Immigrants Catalina Amuedo-Dorantes (San diego State University) Kusum Mundra (San Diego State University) We examine the impact of different types of social networks on the employment and wages of unauthorized and legal Mexican immigrants using data from the Mexican Migration Project. We find that social networks, particularly strong ties, contribute to the economic assimilation of immigrants by raising their hourly wages. However, networks do not enhance immigrants’ employability. Instead, strong ties allow for a lower employment likelihood possibly through the shelter against temporary unemployment provided by close family members. Finally, social networks do not alter the relative employment and earnings performance of unauthorized and legal immigrants in the absence of networks. JEL: J Date: 2005-02-09 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpla:0502001&r=all 678. Zvi Griliches on Diffusion, Lags and Productivity Growth …Connecting the Dots Paul David (Stanford University) The three most extensively cited papers by Zvi Griliches deal with the diffusion of innovations, distributed lags and the sources of the growth of measured total factor productivity, respectively. The close economic connections between these dynamic phenomena remained largely unexplored and were at best only implicit in his published writings until late in his career. Yet, from his later reflective writings, it is clear that Griliches not only recognized the existence of those connections, but regarded them to be critically important in understanding the determinants of the pace of economic growth. The present paper proceeds in that spirit. It examines the relationship between Gliches’ pioneering study of the diffusion of hybrid corn and the subsequent development of economic theories explaining diffusion phenomenon. Rather than offering a comprehensive survey of the literature, its aim is to expose the connections with lagged investment in capital-embodied innovations, and formalize of the micro-to macro links between technological diffusion dynamics and the pace of measured productivity growth. The heterodox, “evolutionary economics” aspects of this approach to explaining technological ‘transitions’ may be thought to be a significant yet under-appreciated part of Griliches’ intellectual legacy. JEL: J Date: 2005-02-10 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpla:0502002&r=all 679. The Measurement of Income Distribution Dynamics when Demographics are correlated with Income Michael Grimm (University of Gottingen, Department of Economics, DIW Berlin) Denis Cogneau (DIAL - UR CIPRE de l’IRD) The purpose of our paper is to derive instructive analytics on how to account for differentials in demographic variables, in particular mortality, when performing welfare comparisons over time. The idea is to apply various ways of `correcting' estimated income distribution measures for `sample selection' due to differential mortality. We implement our approach empirically using three waves of the Indonesian Family Life Surveys (IFLS). We distinguish the direct effect of mortality, i.e. individuals who die leave the population and no longer contribute to monetary welfare, from the indirect effect, i.e. the impact on survivors in the deceased's household who may experience a decrease or increase in monetary welfare. In the case of Indonesia, we show that the direct and indirect effects of mortality on income distribution have opposite signs, but are roughly the same in magnitude. We also show that the effects of other demographic changes- such as changes in the structure of fertility, migration and educational attainment- dominate the effects of mortality, whether direct or indirect. However, we find that none of these demographic developments is substantial enough to explain a significant part of the change in income distribution, regardless of whether the pre-crisis period (1993- 1997) or the post-crisis period (1997-2000) is considered. Keywords: Differential Mortality, Income Distribution Dynamics, Welfare Comparisons, Decomposition. JEL: D10 D63 J17 Date: 2005-02-15 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpla:0502003&r=all 680. the intergenerational transmission of human capital: the case of heterogenous families Boubaker HLAIMI (laboratory of economics & labour sociology) The objective of this paper is to analyse the intergenerational transmission mechanisms within a theoretical framework which supposes a heterogeneous family structure. For that, we propose a modified version of the model of Becker and Tomes (1986) by supposing that they exist two groups of children: the elder ones and juniors. We try to see how according to the results of elder, the parents modify their educational choices or of training of the juniors being given the returns and the endowments Keywords: human capital, intergenerational transmission, abilities, market luck JEL: J Date: 2005-02-16 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpla:0502004&r=all 681. Who Do We Tip and Why? An Empirical Investigation Ofer H. Azar (Ben-Gurion University of the Negev) An important question about social norms is whether they are created to increase welfare; I address it by examining the characteristics of tipped and non-tipped occupations. Tipping prevalence is negatively correlated with worker’s income and consumer’s monitoring ability and positively with consumer’s income and closeness between the worker and the consumer. The results refute a common belief that tipping exists to improve economic efficiency by lowering monitoring costs. Tipping, however, is more prevalent when consumers feel empathy and compassion for workers and want to show gratitude for good service, suggesting that tipping might increase welfare if welfare includes psychological utility. Keywords: Tipping, Service industries, social norms, social welfare, behavioral economics, feelings, emotions JEL: C9 A12 J3 L8 D0 Date: 2005-02-20 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpla:0502005&r=all 682. Time and Financial Transfers Within and Beyond the Family: Results From the Health and Retirement Study Honggao Cao (Institute for Social Research, University of Michigan) Research on time and financial transfers is often conducted along two distinct lines—transfers within the family and transfers beyond the family—without considering the fact that the two types of transfers are actually interrelated. Using longitudinal data from the Health and Retirement Study (HRS), this article investigates the links between the time and financial transfers within and beyond the family. The concepts of within and beyond the family transfers are discussed. Several data quality problems with the transfer measures in the HRS are corrected. Focusing on the interrelationships among the four types of transfers, the study finds that the transfers within and beyond the family are complements in the sense that households that are more willing to make within-family transfers are also more willing to make beyond-family transfers, and vice versa. Income and wealth are strong predictors of financial transfers. Black and Hispanic households lag systematically in the generosity to help the people both within and beyond their families. Keywords: time and financial transfers; transfers within the family; transfers beyond the family; philanthropy and volunteerism; HRS JEL: J Date: 2005-02-23 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpla:0502006&r=all 683. Income Fluctuations, Poverty and Well-Being Over Time: Theory and Application to Argentina Guillermo Cruces (STICERD & Economics Department, LSE) This paper studies poverty as a dynamic phenomenon, motivated by the recurring economic crises that affect developing countries and the incidence of income fluctuations on household welfare. While the increasing availability of household panel data has been exploited in theoretical analysis and empirical applications, the methodological and applied literatures still lack a unified framework. Echoing Atkinson (1987), this paper addresses the question of how poverty should be measured over time aˆ“ or, in more general terms, how to measure well- being based on repeated observations of household income. The paper develops and illustrates a set of tools for empirical work based on theoretically sound extensions of the existing methodology for static distributional analysis. Moreover, this framework encompasses some of the existing approaches as special cases. These tools are illustrated with longitudinal data for Argentina in the 1995-2002 period, which is well suited for this type of analysis given the large fluctuations in household income due to the repeated economic crises in the country. Keywords: Risk, Income Fluctuations, Panel Data, Poverty, Argentina JEL: D81 I32 D63 Date: 2005-02-23 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpla:0502007&r=all 684. The Growth of Labour Hire Employment in Australia Patrick Laplange (Productivity Commission) Maurice Glover (Productivity Commission) Tim Fry This Productivity Commission staff working paper, The Growth of Labour Hire Employment in Australia, was released in February 2005. This staff working paper is part of an ongoing labour market research program at the Productivity Commission to examine developments in employment relationships and the implications of these developments for the labour force and the Australian economy. The series seeks to produce analysis to inform the policy debate by characterising how different forms of employment contribute to the Australian economy. This paper examines how the rapid growth of labour hire employment can be attributed to how firms manage their workforce, rather than to changes in the economy’s structure. For example changes in operating environments contributed to firms’ altering of their employment strategy in favour of labour hire workers through the changing industrial relations context and rising competitive pressures. The views expressed in this paper are those of the staff involved and do not necessarily reflect the those of the Productivity Commission. Keywords: labour; labour hire; employment; industrial relations; labour hire growth; JEL: L Date: 2005-03-08 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpla:0503001&r=all 685. Evaluation of the Impact of Family Planning Programs on Hassan Eini-Zinab (Population Studies & Research Center) This article evaluates the fertility impact of family planning program by using prevalence model in Iran. Prevalence model, which introduced by John Bongaarts, estimates potential fertility and the number of births averted by program and non-program sources by using population and acceptor based data. The difference between potential fertility and observed fertility is related to contraception. The greater the differences between potential and observed fertility, the higher the impact of family planning program on fertility. The study uses the Base Line Survey-2001 (BLS-2001) data, collected by Statistical Center of Iran (SCI) and UNFPA-Iran in selected districts of Bushehr ( Bushehr and Kangan Districts), Golestan (Gonbadkavoos and Minoodasht Districts), Kurdistan (Marivan and Divandareh Districts), Sistan & Bluchestan (Zahedan and Zabol Districts) and Tehran provinces (Islamshahr District). The results of the study indicate that Marivan and Zahedan districts had the high and low reduction rates in TFR and CBR, respectively. The findings also, show that the high reduction in ASFR belongs to age groups 30-34 in Marivan, 35-39 in Islamshahr, Gonbadkavoos and Bushehr, 40-44 in Zabol, Divandareh and Kangan districts and 45-49 in Zahedan and Minoodasht districts. In terms of each method contributions in reducing fertility, results show that the highest contribution of program contraceptives in preventing births in different districts are female sterilization in Bushehr, Divandareh and Islamshahr, and pill in other districts. Keywords: Evaluation Research, Natural Fertility, Gross and Net Potential Fertility, Births averted, Prevalence model, Iran JEL: J Date: 2005-03-12 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpla:0503002&r=all 686. Developing lifelong education in the SMEs. A work-in- progress program in Italy Giuseppe Perrone This communication reports on a work-in-progress project involving managers of Small and Medium Enterprises (SME) located in four Italian Regions: one of them is a historically less advantaged location. The research attempts to explore needs of training and education of managers and executives in the framework of a new approach to lifelong learning established by the Social Partners. Based on mail surveys and face to face interviews the research try to identify the knowledge and skills that are necessary for effective management in the current business environment. A practical and extensive test on the use of e-learning technologies was also performed. Keywords: Lifelong learning; Management education; Social Partnership; E-learning JEL: J Date: 2005-03-12 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpla:0503003&r=all 687. Intergenerational transfers in rural households: A game theoretical approach Americo Mendes (Portuguese Catholic University Porto - Faculty of Economics & Management) The household membership decision is viewed as a “research project” where the offspring invests in human and non human capital to influence the probability of finding an alternative to the parental household. The problem is formulated as a differential game between a selfish offspring and altruistic parents. The solution is consistent with facts” such as the “flexibility of inheritance systems” and the “generational fragmentation” of the family property when the economic opportunities expand outside the parental household. Keywords: intergenerational transfers, rural households, game theory JEL: J Date: 2005-03-13 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpla:0503004&r=all 688. Unequal Access to Foreign Spaces: How States Use Visa Restrictions to Regulate Mobility in a Globalised World Eric Neumayer (London School of Economics) Nation-states employ visa restrictions to manage the complex trade-off between facilitating the entrance to their territory by passport holders from certain countries for economic and political reasons and deterring individuals from other countries for reasons of perceived security and immigration-control. The resulting system is one of highly unequal access to foreign spaces, reinforcing existing inequalities. Trans- national mobility is encouraged for passport holders from privileged nations, particularly rich Western countries, at the expense of severe restrictions for others. Visa restrictions manifest states’ unfaltering willingness to monitor, regulate and control entrance to their territory in a globalised world. Keywords: globalisation, visa restrictions, passport, borderless world, nation-state, mobility JEL: J Date: 2005-03-30 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpla:0503005&r=all 689. On the Measurement of Segregation Federico Echenique (California Institute of Technology) Roland G. Fryer Jr. (Harvard University Society of Fellows, & NBER) This paper develops a measure of segregation based on two premises: (1) a measure of segregation should disaggregate to the level of individuals, and (2) an individual is more segregated the more segregated are the agents with whom she interacts. Developing three desirable axioms that any segregation measure should satisfy, we prove that one and only one segregation index satisfies our three axioms, and the two aims mentioned above; which we coin the Spectral Segregation Index. We apply the index to two well-studied social phenomena: residential and school segregation. We calculate the extent of residential segregation across major US cities using data from the 2000 US Census. The correlation between the Spectral index and the commonly- used dissimilarity index is .42. Using detailed data on friendship networks, available in the National Longitudinal Study of Adolescent Health, we calculate the prevalence of within-school racial segregation. The results suggests that the percent of minority students within a school, commonly used as a substitute for a measure of in-school segregation, is a poor proxy for social interactions. Keywords: segregation, networks, social interactions, school segregation, residential segregation JEL: C0 J15 Date: 2005-03-31 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpla:0503006&r=all 690. Consumption Inequality and Intra-Household Allocations Jeremy Lise (Queen's University) Shannon Seitz (Queen's University) The consumption literature uses adult equivalence scales to measure individual level inequality. This practice imposes the assumption that there is no within household inequality. In this paper, we show that ignoring consumption inequality within households produces misleading estimates of inequality along two dimensions. First, the use of adult equivalence scales underestimates the level of cross sectional consumption inequality by 30%. This result is driven by the fact that large differences in the earnings of husbands and wives translate into large differences in consumption allocations within households. Second, the rise in inequality since the 1970s is overstated by two-thirds: within house-hold inequality declined over time as the share of income provided by wives increased. Our findings also indicate that increases in marital sorting on wages and hours worked can simultaneously explain virtually all of the decline in within household inequality and a substantial fraction of the rise in between household inequality for one and two adult households in the UK since the 1970s. Keywords: Collective Model, Consumption Inequality, Marital Sorting, Adult Equivalence Scales JEL: D12 D13 D63 J12 J22 Date: 2005-04-08 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpla:0504001&r=all 691. Gender and Neighborhood Differences in the Labor-school Trade- off. Evidence from a Bivariate Probit Model Bernhard Ganglmair (Bonn Graduate School of Economics) New data from Uganda is used for the joint estimation of a household's child labor and child school attendance decision applying a bivariate probit model. Individual characteristics, income and asset variables as well as variables denoting household composition and number of siblings were used as regressors. Results implying a stronger trade-off between these two decisions in urban than rural areas and stronger for girls than for boys are obtained. Especially rural boys thus have a stronger tendency to combine their labor activities with schooling. This 'gender bias' is reinforced by a significantly strong effect of a household's wage income on boys' decisions, whereas girls are little or not affected at all. For girls, household composition and number of younger siblings are relatively more decisive. This also suggests a possible 'role order' among children within the household. Keywords: child labor, school attendance, decision trade-off, simultaneous labor--school decision, bivariate probit, Uganda JEL: C35 J43 Date: 2005-04-12 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpla:0504002&r=all 692. The Dark, and Independent, Side of the Italian Labour Market Maurizio Bovi (Institute for Studies & Economic Analyses ISAE) In many countries the shadow employment has a very high priority among policymakers. A new time series for this component of the labour market has been recently released by the Italian institute of statistics. Taken together they give the motivation and the occasion for a fresh analysis of the Italian labour market over the last two decades. The aim and the contribution of this paper is to highlight some stylised facts about the links between the two sides of the labour market, the dark and the regular. Results from “exhaustive” VAR/VEC models suggest that there are no connections (causal relationships, feedbacks, contemporaneous correlation) between these two time series. In this sense, we could correctly refer to the undeclared work as an “independent” side of the Italian labour market. I interpret these results as providing empirical support for the ineffectiveness of labour policies in converting black employment into regular one. Keywords: Underground economy; VAR models; Dual labour market. JEL: C53 H26 J30 Date: 2005-04-12 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpla:0504003&r=all 693. Intra-household Work Time Synchronization Chris van Klaveren (University of Amsterdam - SCHOLAR) Henriette Maassen van den Brink (University of Amsterdam - SCHOLAR) When considering benefits of marriage, economic theory usually stresses the possibility of joint consumption and the gains of division of labor supply. However individuals who are living together might simply derive utility from spending leisure time together. For these individuals it then pays off to synchronize work times with their partners. This paper tests if partners coordinate with each other and synchronize their work times. We use a matching procedure where couples are first matched to other couples and then switch partners. The empirical results suggest that (1) individuals who are married or are living together synchronize their work times although the effect is small, (2) more than 95 percent of the couples synchronize more than 80 percent of their possible work time hours and that (3) the main reason why couples are not able to synchronize their work times to a greater extend is because they have children. JEL: D13 I31 J12 J22 Date: 2005-04-13 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpla:0504005&r=all 694. The European Regional Crime Database: Data from the Book 'Crime in Europe' Horst Entorf (Technische Universitat Darmstadt) Hannes Spengler (Technische Universitat Darmstadt) This paper contains a documentation of the EU regional crime database (EURCD). The EURCD is the basis of the analyses presented in our recently published book 'Crime in Europe' which, in turn, is the result of a research project conducted on behalf of the EU Commission. The EURCD is a panel dataset containing information on 12 Interpol crime categories (murder, sex offences, rape, serious assault, theft, aggravated theft, robbery and violent theft, breaking and entering, theft of motor cars, fraud, drug offences and total offences) across eight EU member states ( Denmark, Germany, Spain, Italy, the Netherlands, Finland, Sweden and England & Wales) for the maximal period 1980-1998 (length of period depends on country and region). The spatial structure of the EURCD is organised according to Eurostat's NUTS-system, meaning that it contains data broken down into, for instance, German 'Kreise', Spanish 'Provincias' and Italian 'Provincias'. Crime data obtained for countries which, for reasons explained in the paper, could not (Belgium, Greece, Portugal) or only partly ( England & Wales) be integrated into the analyses is (or will soon be) provided in country-specific files. There is a lack of data for Ireland and Luxemburg because regional crime data does not exist for these countries, and for France and Austria which refused to participate in the project. In order to allow multivariate analyses of the causes and consequences of crime the EURCD also contains a sizeable number of non-crime variables. By providing this data to the public we hope to enhance empirical crime research in Europe which until today has been denied adequate attention by both criminologists and economists. JEL: K42 Date: 2005-01-23 URL: http://d.repec.org/n?u=RePEc:wpa:wuwple:0501004&r=all 695. The European Regional Crime Database: Data from the Book Crime in Europe Horst Entorf (Technische Universitat Darmstadt) Hannes Spengler (Technische Universitat Darmstadt) This paper contains a documentation of the EU regional crime database (EURCD). The EURCD is the basis of the analyses presented in our recently published book 'Crime in Europe' which, in turn, is the result of a research project conducted on behalf of the EU Commission. The EURCD is a panel dataset containing information on 12 Interpol crime categories (murder, sex offences, rape, serious assault, theft, aggravated theft, robbery and violent theft, breaking and entering, theft of motor cars, fraud, drug offences and total offences) across eight EU member states ( Denmark, Germany, Spain, Italy, the Netherlands, Finland, Sweden and England & Wales) for the maximal period 1980-1998 (length of period depends on country and region). The spatial structure of the EURCD is organised according to Eurostat's NUTS-system, meaning that it contains data broken down into, for instance, German 'Kreise', Spanish 'Provincias' and Italian 'Provincias'. Crime data obtained for countries which, for reasons explained in the paper, could not (Belgium, Greece, Portugal) or only partly ( England & Wales) be integrated into the analyses is (or will soon be) provided in country-specific files. There is a lack of data for Ireland and Luxemburg because regional crime data does not exist for these countries, and for France and Austria which refused to participate in the project. In order to allow multivariate analyses of the causes and consequences of crime the EURCD also contains a sizeable number of non-crime variables. By providing this data to the public we hope to enhance empirical crime research in Europe which until today has been denied adequate attention by both criminologists and economists. JEL: K42 Date: 2005-01-23 URL: http://d.repec.org/n?u=RePEc:wpa:wuwple:0501005&r=all 696. Police numbers up, crime rates down. The effect of police on crime in the Netherlands, 1996-2003 Ben Vollaard (CPB) We present evidence on the effect of greater numbers of police personnel on crime and nuisance reduction in the Netherlands. We use a multiple time series design with police regions as the unit of analysis, covering the period 1996-2003. During this period, police resources increased substantially. The growth in additional resources differed greatly between regions, allowing us to use this policy intervention to identify the effect of police on crime and nuisance. We control for regional economic, social and demographic factors and for national trends that might obscure the effect of police on crime. We find significantly negative effects of higher police levels on property crime, violent crime and nuisance. Our estimates suggest that a substantial proportion of the decline in crime and nuisance during the period 1996-2003 is attributable to the increase in police personnel. Keywords: police, crime, nuisance, effectiveness, victimisation survey JEL: K4 Date: 2005-01-26 URL: http://d.repec.org/n?u=RePEc:wpa:wuwple:0501006&r=all 697. Jeopardy, non-public information, and insider trading around SEC 10-K and 10-Q filings Steven Huddart (Pennsylvania State University) Bin Ke (Pennsylvania State University) Charles Shi (University of California, Irvine) We document how insider trading is associated with two significant information releases occuring each fiscal quarter: the earnings announcement, which is a summary measure of firm performance, and the subsequent Form 10-K or 10-Q, which contains additional price-relevant information. The association of trades before the earnings announcement and the abnormal return at the announcement suggests that insiders avoid profitable trades in this period. In contrast, trades after the earnings announcement are associated with both the preceding earnings announcement and the forthcoming 10-K or 10-Q release in a manner that suggests insider seek profitable trades. These findings are consistent with insiders conditioning their trading on foreknowledge of price- relevant public disclosures, but limiting their trades to periods when the jeopardy due to trade is low. Keywords: accounting standards, government regulation, insider trading, litigation risk, stock-based compensation JEL: K22 J33 M12 Date: 2005-02-07 URL: http://d.repec.org/n?u=RePEc:wpa:wuwple:0502001&r=all 698. Towards a cyberinfrastructure for enhanced scientific Paul A. David (Stanford University & The Oxford Internet Institute) A new generation of information and communication infrastructures, including advanced Internet computing and Grid technologies, promises to enable more direct and shared access to more widely distributed computing resources than was previously possible. Scientific and technological collaboration, consequently, is more and more coming to be seen as critically dependent upon effective access to, and sharing of digital research data, and of the information tools that facilitate data being structured for efficient storage, search, retrieval, display and higher level analysis. A recent (February 2003) report to the U.S. NSF Directorate of Computer and Information System Engineering urged that funding be provided for a major enhancement of computer and network technologies, thereby creating a cyberinfrastructure whose facilities would support and transform the conduct of scientific and engineering research. The articulation of this programmatic vision reflects a widely shared expectation that solving the technical engineering problems associated with the advanced hardware and software systems of the cyberinfrastructure will yield revolutionary payoffs by empowering individual researchers and increasing the scale, scope and flexibility of collective research enterprises. The argument of this paper, however, is that engineering breakthroughs alone will not be enough to achieve such an outcome; success in realizing the cyberinfrastructure’s potential, if it is achieved, will more likely to be the resultant of a nexus of interrelated social, legal and technical transformations. The socio-institutional elements of a new infrastructure supporting collaboration – that is to say, its supposedly “softer” parts -- are every bit as complicated as the hardware and computer software, and, indeed, may prove much harder to devise and implement. The roots of this latter class of challenges facing “e-Science” will be seen to lie in the micro- and meso- level incentive structures created by the existing legal and administrative regimes. Although a number of these same conditions and circumstances appear to be equally significant obstacles to commercial provision of Grid services in interorganizational contexts, the domain of publicly supported scientific collaboration is held to be the more hospitable environment in which to experiment with a variety of new approaches to solving these problems. The paper concludes by proposing several “solution modalities,” including some that also could be made applicable for fields of information-intensive collaboration in business and finance that must regularly transcends organizational boundaries. JEL: K Date: 2005-02-09 URL: http://d.repec.org/n?u=RePEc:wpa:wuwple:0502002&r=all 699. Global Diseases, Global Patents and Differential Treatment in WTO Law Tapen Sinha (ITAM, Mexico) Bradly J Condon (ITAM, Mexico) As of January 1, 2005, all developing country members of the WTO are required to implement the WTO Agreement on Trade Related Intellectual Property Rights (TRIPS). We analyze the issue of access to patented medicine to treat global and neglected diseases in developing countries in the context of WTO law. We present legal and economic arguments that support balancing the rights of producers and users on a market-by- market basis and argue against taking a uniform approach globally. We conclude that global patent rights are not necessary to provide research incentives to pharmaceutical firms to invent treatments for global and neglected diseases. We develop an analytical framework for assessing special and differential treatment of developing countries in WTO law and apply this framework to TRIPS. We then propose a formula for assessing the correct balance between the rights of producers and users on a market-by-market basis. Keywords: WTO, TRIPS, AIDS, Chapter 6, HIV, Index Construction JEL: K Date: 2005-02-09 URL: http://d.repec.org/n?u=RePEc:wpa:wuwple:0502003&r=all 700. Towards a cyberinfrastructure for enhanced scientific Paul A. David (Stanford University & Oxford Internet Institute) Scientific and technological collaboration is more and more coming to be seen as critically dependent upon effective access to, and sharing of digital research data, and of the information tools that facilitate data being structured for efficient storage, search, retrieval, display and higher level analysis. A February 2003 report to the U.S. NSF Directorate of Computer and Information System Engineering urged that funding be provided for a major enhancement of computer and network technologies, thereby creating a cyberinfrastructure whose facilities would support and transform the conduct of scientific and engineering research. The argument of this paper is that engineering breakthroughs alone will not be enough to achieve such an outcome; success in realizing the cyberinfrastructure’s potential, if it is achieved, will more likely to be the resultant of a nexus of interrelated social, legal and technical transformations. The socio-institutional elements of a new infrastructure supporting collaboration that is to say, its supposedly “softer” parts -- are every bit as complicated as the hardware and computer software, and, indeed, may prove much harder to devise and implement. The roots of this latter class of challenges facing “e- Science” will be seen to lie in the micro- and meso-level incentive structures created by the existing legal and administrative regimes. Although a number of these same conditions and circumstances appear to be equally significant obstacles to commercial provision of Grid services in interorganizational contexts, the domain of publicly supported scientific collaboration is held to be the more hospitable environment in which to experiment with a variety of new approaches to solving these problems. The paper concludes by proposing several “solution modalities,” including some that also could be made applicable for fields of information-intensive collaboration in business and finance that must regularly transcends organizational boundaries. JEL: K Date: 2005-02-10 URL: http://d.repec.org/n?u=RePEc:wpa:wuwple:0502004&r=all 701. How to Improve Forensic Science Roger Koppl (Fairleigh Dickinson University) Some institutional structures for inquiry produce better approximations to truth than others. The current institutional structure of police forensics gives each lab a monopoly in the analysis of the police evidence it receives. Forensic workers have inadequate incentives to produce reliable analyses of police evidence. Competition would create such incentives. I outline a system of “competitive self regulation” for police forensics. Each jurisdiction would have several competing forensic labs. Evidence would be divided and sent to one, two, or three separate labs. Chance would determine which labs and how many would receive evidence to analyze. Competitive self regulation improves forensics by creating incentives for error detection and reducing incentives to produce biased analyses. Keywords: forensics, forensic science, epistemics, DNA, fingerprints, vouchers, privatization JEL: K Date: 2005-03-09 URL: http://d.repec.org/n?u=RePEc:wpa:wuwple:0503001&r=all 702. On the Nature of the Corrupt Firm: Where to Situate Liability? Raphaela Seubert (University of Passau, Germany) Applying the modern Property Rights Approach to depict employment and firm-internal delegation relationships, this paper addresses the question how to prevent corporate bribery. The analysis and the answers that follow take into account interaction effects between firm-internal delegation relationships, the possibly devilish side function of formal corporate ethics efforts (namely to shield firms or superiors from criminal accountability by shifting it onto their subordinate employees), the distribution of criminal liability, and the necessity for courts to rely on available evidence. From the simple theoretical framework, a bundle of implications follows: (1) conditions under which formal corporate ethics guidelines can take on a Janus-faced nature, i.e. lack credibility, (2) suggestions how firms can enhance the credibility of their corporate ethics efforts, (3) starts how to avoid the possible “second-order” lack of credibility of such credibility- enhancing measures, (4) clear-cut statements as to ( a) where criminal liability should be situated within the firm and (b) how corporate and individual liabilities should be combined to both restrain corruption and to sustain the credibility of corporate ethics. These implications allow comparatively evaluating the effectiveness of international anti- corruption laws – specifically the desirability of corporate vs. personal criminal liabilities. Keywords: Non-verifiable contracts, bribery, hard-copy evidence, delegation, mixed incentives, exit, voice, corporate ethics, all-for- one, victimize, Janus-faced, corporate liability JEL: K42 L20 M12 M14 Date: 2005-03-18 URL: http://d.repec.org/n?u=RePEc:wpa:wuwple:0503002&r=all 703. New political sysyem,which is useful to control the politics to use the economics resources. Maheshjani (G.H.Jani.charitable trust,kampteelane, Rajnandgaon- 491441 C.G. India) In this democratic political system the huge amount is wasted in election system, and the person ,who will invest the money , naturally wants to recover it, and government expenditure cannot be properly used without moral control on politics,sothat this is new system of politics. Maheshjani Keywords: Political control through new constitution to avoid misuse of funds. JEL: K Date: 2005-03-24 URL: http://d.repec.org/n?u=RePEc:wpa:wuwple:0503003&r=all 704. Determinants of the Crime Rate in Argentina during the 90's Ana Maria Cerro (Universidad Nacional de Tucuman) Osvaldo Meloni (Universidad Nacional de Tucuman) Since Adam Smith, economists have emphasized income distribution and unemployment as key elements to explain criminal behavior. However, the empirical evidence did not always confirm such conjecture. Departing from the theoretical framework proposed by Becker (1968), the present paper identifies the determinants of the crime rate in Argentina using a panel data for 1990-99. As in previous papers studying the Argentina case, it is found that deterrence variables are important. However, unlike those papers, income distribution, unemployment and per capita GDP also played crucial roles, which has important implications for policy design. Classification JEL: K4, I3 Keywords: Crime rate, income distribution, unemployment, Argentina JEL: K Date: 2005-04-08 URL: http://d.repec.org/n?u=RePEc:wpa:wuwple:0504001&r=all 705. Overtakable capitalist growth paths A. J. Julius (New School University) Comparing a process of labor- and capital-augmenting technical change directed by capitalists' maximization of profits with a counterfactual in which decentralized innovation decisions are governed by noncapitalist property relations, I claim that if the two economies start from the same technology and capital stock there's a date T such that after T per-capita consumption is always strictly greater on the counterfactual. Keywords: Directed technical change, golden rule, growth- distribution duality JEL: E25 O31 O41 P51 Date: 2005-01-21 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0501030&r=all 706. Sticky Price Models and Durable Goods Robert Barsky (University of Michigan) Christopher L. House (University of Michigan) Miles Kimball (University of Michigan) This paper shows that there are striking implications that stem from including durable goods in otherwise conventional sticky price models. The behavior of these models depends heavily on whether durable goods are present and whether these goods have sticky prices. If long-lived durables have sticky prices, then even small durables sectors can cause the model to behave as though most prices were sticky. Conversely, if durable goods prices are flexible then the model exhibits unwelcome behavior. Flexibly priced durables contract during periods of economic expansion. The tendency towards negative comovement is very robust and can be so strong as to dominate the aggregate behavior of the model. In an instructive limiting case, money has no effects on aggregate output even though most prices in the model are sticky. Keywords: Sticky prices, Durables, Comovement, Neutrality JEL: E21 E30 E31 E32 Date: 2005-01-27 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0501031&r=all 707. Monetary Convergence of the EU Candidates to the Euro: A Theoretical Framework and Policy Implications Lucjan T Orlowski (Sacred Heart University) A flexible approach to direct inflation targeting is a viable monetary policy choice for transition economies that is believed to facilitate both the economic transition and the monetary convergence to the euro. Following this assumption, an analytical model investigating the link between the inflation process and monetary variables in transition economies is advanced in this study. The empirical testing is conducted for Poland, the Czech Republic and Hungary. The analysis recommends that the monetary convergence begins with inflation targeting and concludes with a full-fledged euroization. It further advocates the application of flexible benchmarks of monetary convergence that would accommodate various non-monetary factors affecting inflation in transition economies. Keywords: transition economies, European Union candidate countries, inflation targeting, inflation targeting, monetary convergence JEL: E32 E52 P33 Date: 2005-01-28 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0501032&r=all 708. Money Rules For The Eurozone Candidate Countries Lucjan T Orlowski (Sacred Heart University) This study proposes the adoption of money growth rules as indicator variables of monetary policies by the countries converging to a common currency system, in particular, by the eurozone candidate countries. The analytical framework assumes an inflation target as the ultimate policy goal. The converging countries act in essence as “takers” of the inflation target, which, in this case, is the eurozone’s inflation forecast. The study advances a forward-looking money growth model that might be applied to aid monetary convergence to the eurozone. However, feasibility of adopting money growth rules depends on stable relationships between money and target variables, which are low inflation and stable exchange rate. Long-run interactions between these variables are examined for Poland, Hungary and the Czech Republic by employing a Johansen cointegration test, along with short-run effects assessed with a vector error correction procedure. Keywords: common currency system, eurozone, monetary convergence, money growth rules, inflation targeting. JEL: E42 E52 F36 P24 Date: 2005-01-28 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0501033&r=all 709. Exchange Rate Risk and Convergence to the Euro Lucjan T Orlowski (Sacred Heart University) This paper proposes a new monetary policy framework for effectively navigating the path to adopting the euro. The proposed policy is based on relative inflation forecast targeting and incorporates an ancillary target of declining exchange rate risk, which is suggested as a key criterion for evaluating the currency stability. A model linking exchange rate volatility to differentials over the euro zone in both inflation (target variable) and interest rate (instrument variable) is proposed. The model is empirically tested for the Czech Republic, Poland and Hungary, the selected new Member States of the EU that use direct inflation targeting to guide their monetary policies. The empirical methodology is based on the TARCH(p,q,r)-M model. Keywords: exchange rate risk, inflation targeting, monetary convergence, euro area, new EU Member States JEL: E42 E52 F36 P24 Date: 2005-01-28 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0501034&r=all 710. THE ROLES OF MONEY IN AN ECONOMY AND THE OPTIMUM QUANTITY OF MONEY Edgar L. Feige (University of Wisconsin-Madison) M. Parkin (University of Manchester) R Avery (University of Wisconsin-Madison) C. Stones (University of Manchester) What is the optimum quantity of money in a society? This paper answers this question both from the perspective of a utility maximizing model with real balances in the utility function, and employing an inventory theoretic model which focuses attention on the costs of transacting in different markets and on the storage costs of holding money. We find that socially optimal transactions patterns and inventory holdings can be induced by paying interest on money and bonds equal to the net rate of return on capital. This conclusion is however only valid if it is costless for the society to institute and operate such an interest payment mechanism. In a world where it is costly to institute and operate an interest payment mechanism, a social optimum requires that the rate of return on money and bonds must equal the net rate of return on capital minus the social cost of inducing individuals to hold optimal quantities of financial assets. It is therefore necessary to take account of both the potential gains in welfare from instituting interest payments on money and the real potential costs of such a policy. Reference: Economica, November, 1973 pp. 416-431 JEL: E41 E50 E59 E52 E31 G11 Date: 2005-01-30 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0501035&r=all 711. Monetary Convergence And Risk Premiums In The EU Candidate Countries Lucjan T Orlowski (Sacred Heart University) This study examines the link between various monetary policy regimes and the ability to manage inflation and exchange rate risk premiums in the EU candidate countries as they undergo monetary convergence to the eurozone. The underlying hypothesis is that a system of 'flexible inflation targeting' may be an optimal policy choice for managing these two categories of risk. A model of inflation and exchange rate risk premiums within the context of inflation targeting is proposed. Recent trends in these risk premiums in Hungary, the Czech Republic and Poland are tested by using the GARCH(1,1) methodology. Keywords: inflation risk premium, exchange rate risk premium, inflation targeting, monetary convergence, transition economies JEL: E32 E52 P33 Date: 2005-01-31 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0501037&r=all 712. A Dynamic Approach to Inflation Targeting in Transition Economies Lucjan T Orlowski (Sacred Heart University) This study views inflation targeting as a viable regime for more advanced transition economies. A dynamic approach to the trajectory of disinflation and the flexibility of direct inflation targeting is presented in the context of achieving monetary convergence to the EU/EMU. The candidate countries are advised to begin from strict inflation targeting and to follow with a more flexible inflation targeting regime before they establish a necessary 'foundational credibility' and monetary stability. These steps, ultimately followed by the euro-peg, are necessary in preparing for accession to the eurozone. The early experiences of the Czech Republic and Poland with inflation targeting are examined. JEL: E32 E52 P33 Date: 2005-01-31 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0501038&r=all 713. Does Monetary Policy Have Asymmetric Effects on Stock Returns? Shiu-Sheng Chen (Department of Economics, National Taiwan University) This paper investigates whether monetary policy has asymmetric effects on stock returns using Markov-switching models. Different measures of the stance of monetary policy are adopted. Empirical evidence from monthly returns on the standard & Poor 500 (S&P 500) price index suggests that monetary policy has larger effects on stock returns in bear markets. Furthermore, it has been shown that contractionary monetary policy leads to a higher probability of switching to a recession in stock markets. Keywords: Monetary Policy, Stock Returns, Markov-switching JEL: E52 E32 G10 Date: 2005-02-01 Date: 2005-02-01 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502001&r=all 714. Lending Booms in Europe’s Periphery: South-Western Lessons for Central-Eastern Members Michal Brzoza-Brzezina (National Bank of Poland, Warsaw School of Economics) In this paper we analyse the potential for lending booms in three biggest new EU member states (Czech Republic, Hungary and Poland) during the process of Euro adoption. Experience of old members (Greece, Ireland and Portugal) as well as econometric evidence speak in favour of strong increases in credit in Hungary and Poland and against such an event in the Czech Republic. However, the expected lending booms are smaller than those Ireland and Portugal witnessed recently. We state that, given the current data set, no substantial risk to the banking sectors of the new member states should be expected. We also find that the monetary consequences of these booms for the Euro-area as a whole will be almost negligible. Keywords: lending booms, Euro area, banking sector stability, new member states JEL: E51 E58 G21 Date: 2005-02-01 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502002&r=all 715. Costo de Uso del Capital en Colombia:1997 -2003 Leonardo Rhenals Rojas (Departamento Nacional de Planeacion) El documento analiza la evolucion del costo de uso del capital en el periodo 1997 –2003 en Colombia. A diferencia de los trabajos anteriores se construye una serie del costo de uso del capital a partir de la informacion suministrada por las empresas a la Superintendencia de Sociedades, lo cual evita los errores generados por la utilizacion de variables macroeconomicas agregadas. Durante los ultimos siete anos las tasas de interes y la inflacion se han reducido drasticamente luego de la crisis de finales de los noventa, lo cual ha repercutido sobre el costo de uso del capital en Colombia. Por otra parte, las tasas impositivas han permanecido relativamente constantes, a pesar de las numerosas reformas tributarias las cuales han estado mas orientadas a aumentar la base gravable. Estos dos factores afectan las decisiones de inversion y financiamiento por parte de las empresas lo cual se ve reflejado en el crecimiento economico de mediano y largo plazo. Durante el periodo de estudio el costo de uso se ha reducido en poco mas de un tercio desde su nivel en 1997, sin embargo en terminos reales sigue siendo alto. Medidas adoptadas recientemente para estimular la inversion via descuento de inversiones en activos productivos tendrian un impacto limitado sobre el costo de uso del capital con respecto a medidas de politica monetaria tendientes a reducir las tasas de interes y la inflacion. Keywords: Colombia;LAC;Latinoamerica;Costo de uso del capital; Tributacion JEL: E22 E62 L0 Date: 2005-02-01 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502003&r=all 716. THE UNDERGROUND ECONOMY AND THE CURRENCY ENIGMA Edgar L. Feige (University of Wisconsin-Madison) The size, growth and causes of the US “underground economy” are examined in light of new estimates of foreign holdings of US currency. World dollarization partially resolves the “currency enigma” which refers to the anomaly that roughly 80% of the US currency supply is “missing” and an estimated ten trillion dollars of cash payments can not be accounted for. US currency that is used overseas suggests that there is a world wide unrecorded economy that could rival the size of the US economy. Large and variable overseas holdings of US currency imply that monetary aggregates must be redefined to include only domestically held currency. The paper defines and estimates the size of the ‘domestic money supply”. Reference: Proceedings of the 49th Congress of the International Institute of Public Finance, Berlin 1993, Supplement to Public Finance Vol. 49 (1994) pp.119-136. Keywords: underground economy, dollarization, currency, money supply, monetary base,unreported income, unrecorded income. JEL: E41 E51 E52 H26 Date: 2005-02-01 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502004&r=all 717. EXPECTATIONS AND ADJUSTMENTS IN THE MONETARY SECTOR Edgar L. Feige (University of Wisconsin-Madison) This paper examines the problem of appropriately specifying and estimating the money demand function in the presence of adaptive expectations and partial adjustment mechanisms. The paper demonstrates the difficulty of interpreting distributed lag reduced form representations of the monetary sector when both expectation and adjustment mechanisms are present. It finally presents and empirically estimates an identified model of the monetary sector with partial adjustment mechanisms and multiple expectation formation mechanisms and finds that the elasticity of adjustment appears to be unity, and the adaptive expectation elasticity of income conforms to that proposed by Friedman’s permanent income hypothesis. Reference: American Economic Review, Vol. LVII, No. 2 May, 1967, pp. 462-473. Keywords: money demand, expectations, adjustments, distributed lags, identification, adaptive expectations, pasrtial adjustments, permanent income. JEL: E41 E42 C1 C3 D84 Date: 2005-02-01 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502005&r=all 718. BUSINESS FLUCTUATIONS AND FINANCIAL ACCOUNTING MEASUREMENT: HISTORICAL COMMENTS stanley c. w. salvary (Canisius College) This paper addresses a theme in an historical setting that financial accounting measurement contributes to: (1) retardation of national economic growth by the failure of financial accounting to provide for the replacement of capital goods in its measurement process; and (2) the business cycle owing to the illusory profits reported in financial statements. The author explores the issues and concludes that the arguments against accounting are based upon misunderstandings. Keywords: retardation of economic growth; national or social accounting; replacement cost accounting; Harrod's 'instability principle'; maintenance of physical capacity; illusory profits. JEL: E Date: 2005-02-01 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502006&r=all 719. Finance Matters Pedro S. Amaral (Southern Methodist University) Erwan Quintin (Federal Reserve Bank of Dallas) We present a model in which the importance of financial intermediation for development can be measured. We generate financial differences by varying the degree to which contracts can be enforced. Economies where enforcement is poor employ less capital and less efficient technologies. Calibrated simulations reveal that both effects are important. Yet, accounting for all the observed dispersion in output requires a higher capital share or a lower elasticity of substitution between capital and labor than usually assumed. We find that the effects of changes in those technological parameters on output are markedly larger when financial frictions are present. Finance, that is, matters. JEL: E Date: 2005-02-01 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502007&r=all 720. ALTERNATIVE TEMPORAL CROSS-SECTION SPECIFICATIONS OF THE DEMAND FOR DEMAND DEPOSITS Edgar L. Feige (University of Wisconsin-Madison) This paper examines a broad set of alternative temporal cross- section specifications of the demand for money as a means of estimating the degree of substitution between demand deposits and other liquid assets. Despite differences in data bases, model specifications and estimation techniques, the results are surprisingly robust; suggesting that the own rate of return on demand deposits is an important argument of the demand function ; that other liquid assets are relatively weak substitutes for demand deposits; and that the income elasticity of demand deposits is less than unity. Reference: The Journal of Finance, Vol. XXIX No. 3, June 1974. Keywords: Money demand, substitutibility, liquid assets, temporal cross- section specifications, income elasticity. JEL: E41 E42 C1 C31 Date: 2005-02-02 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502009&r=all 721. THE UNDERGROUND WEALTH OF NATIONS: COMMENTARY ON 'THE OTHER PATH' Edgar L. Feige (University of Wisconsin-Madison) This paper examines the contribution of Hernando De Soto’s “The Other Path” in the context of the literature on “underground economies”. Various types of “underground economies” are described and are shown to arise from different causes and to have different consequences. The underground economies of the Western World are compared to those in Socialist countries and those most likely to be found in developing nations. Reference: The World and I, June 1989 Keywords: Underground, informal, unreported, unrecorded,De Soto, JEL: O17 H26 Date: 2005-02-03 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502010&r=all 722. THE ANATOMY OF THE UNDERGROUND ECONOMY Edgar L. Feige (University of Wisconsin-Madison) The “underground economy” literature has generated a plethora of vague terms (shadow, hidden, subterranean) that have served to confuse rather than clarify the substantive issues raised by the finding that significant segments of economic activity may be imperfectly accounted for in the conventional data bases that form the foundation of empirical inquiry in economics. This paper outlines a taxonomic framework that clarifies the distinction between “unrecorded” and “unreported” economic activities and examines the appropriate empirical counterparts of these concepts. All too often, the under-recording of income in National Income and Product Accounts has been confused with the underreporting of income on tax forms. The concept of a “full compliance deficit” is introduced in order to distinguish between structural, cyclical and compliance components of budget deficit measures. Reference: The Unofficial Economy, Alessandrini and Dallago (eds.) Gower, 1987. pp. 83- 106. Keywords: underground, unreported, unrecorded, non-observed, shadow,deficits, full compliance deficit,IRS,tax gap. JEL: H26 H62 Date: 2005-02-03 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502011&r=all 723. THE UK'S UNOBSERVED ECONOMY: A PRELIMINARY ASSESSMENT Edgar L. Feige (University of Wisconsin-Madison) This paper examines the available evidence on the size the UK’s underground (unobserved) economy and presents preliminary evidence on the size and growth of the unobserved economy for the period 1960-1980 based on Feige’s transaction approach. Reference: Journal of Economic Affairs, Vol.1 No.4 July, 1981, pp. 205-212. Keywords: UNDERGROUND ECONOMY, UNOBSERVED ECONOMY, TRANSACTIONS METHOD, DISCREPANCY MEASURES. JEL: E1 H26 O17 Date: 2005-02-04 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502012&r=all 724. THE UNOBSERVED ECONOMY AND THE UK LAFFER CURVE Edgar L. Feige (University of Wisconsin-Madison) Robert T. McGee (University of Wisconsin-Madison) Recent research on the unobserved economy suggests that the phenomenon has important implications for both macroeconomic policy and public finance. Attention is focused on the public finance implications by examining a macro-model model from which it is possible to derive a family of Laffer curves. The model reveals that the final shape and position of the Laffer curve depends upon the strength of supply side effects, the progressivity of the tax system and the size of the unobserved economy. Using alternative parameterizations of each of these effects, we obtain rough empirical estimates of the Laffer curve for the UK. Reference: Journal of Economic Affairs, Vol. 3, No.1, October, 1982, pp.36-42. Keywords: UNOBSERVED ECONOMY, UNDERGROUND ECONOMY, LAFFER CURVE, SUPPLY SIDE, JEL: E1 E6 H26 O17 Date: 2005-02-04 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502013&r=all 725. Application of Method of Systems Potential in Economics: Hysteresis Loops and Business Cycle; The Great Depression of 1930's as Mathematical Catastrophe of Economic System. Grigorii Pushnoi (International Bogdanov Institute) It is proposed to consider the business cycle as hysteresis loop with fluctuating limiting points. Concept is based on the Method of System Potential, (Proceedings of International System Dynamics Conference 2003, No.56) which describes dynamics of spontaniously arising Complex Systems as the process of realization of some its inner propertiy of such Systems, so- called the 'Potential of a System'. Quasi-periodical dynamics of the 'index of efficiency' of such systems outcome from 'evolution equations' of the Method. Dynamics of Economic System is analized on the basis of this general system approach. Quasi-periodical cycle consists of two phases of gradual growth and two jumps – upward and down ward. Every such jump means mathematical catastrophe. The surface of this catastrophe is analyzed. It is proposed consider cyclical evolution of a System as a process of its qualitative refreshment. This method as applied to Economic System allows explaining some properties of the typical business cycle established by W. C. Mitchell (NBER) with respect to duration of different phases of the cycle. The Method as applied for quantitative analysis of U.S. Economic dynamics in 1922-1949 gives advance understanding of Great Depression of 1930’s. Keywords: business cycle, catastrophe theory, economic potential, Great Depression JEL: N Date: 2005-02-05 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502014&r=all 726. Business cycle model on the basis of “systems potential” method. Grigorii Pushnoi (International Bogdanov Institute) The new business cycle three-dimensional model is formulated on the basis of new system approach known as the System Potential Method. Cyclical dynamics with catastrophe jumps (alike to Varian' model) and some stochastic properties is described. Properties of such cycles are similar to the properties of the typical business cycle. Keywords: business cycle model, catastrophe theory, economic potential JEL: O P Date: 2005-02-05 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502015&r=all 727. Japanese Saving Rate Kaiji Chen (University of Southern California) Ayse Imrohoroglu (University of Southern California) Selo Imrohoroglu (University of Southern California) Japanese and U.S. saving rates have been significantly different over the last forty years. Can a standard growth model explain this difference? The answer is yes. Our results indicate that both an infinite horizon, complete markets setup and an overlapping generations model with incomplete markets are about equally able to generate saving rates that are remarkably similar to the data during 1961-1998. Our quantitative findings identify changes in the growth rate of total factor productivity and the low initial capital stock as the main factors generating the time series behavior of the net national saving rate in Japan. We show that if the Japanese had faced the U.S. TFP and initial conditions, their saving rate would have looked very similar to that of the U.S. households. In other words, it seems that there is nothing peculiar about the Japanese saving behavior. Keywords: Neoclassical Growth Model, Saving Behavior, Total Factor Productivity JEL: E Date: 2005-02-07 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502017&r=all 728. ON THE HISTORICAL VALIDITY OF NOMINAL MONEY AS A MEASURE OF ORGANIZATIONAL PERFORMANCE: SOME EVIDENCE AND LOGICAL ANALYSIS stanley c. w. salvary (Canisius College) In the literature, nominal money has been decried as a reliable measure. However, before condemning money as a defective measure, it is necessary to examine in a historical context the nature and the role of money in a money economic system, and the changes over time in the types of money (commodity money versus paper money). Using historical evidence and logical analysis, this paper attempts to establish the validity of nominal money as a valid device for the measurement of organizational perfor mance. This paper reveals that: (1) the deficiencies of commodity money ( and the historical arguments associated with it) are attributed to paper (fiat) money; (2) in a historical setting, there are very restrictive conditions under which paper money would be a defective measuring device; and (3) under general economic conditions, paper money is a reliable measure. Keywords: organizing economic activities; commodity money; representative paper money; transaction cost reduction; extrinsic and intrinsic values; uncertain nominal value; non specified purchasing power; individual preferenc; stored entitlements. JEL: E Date: 2005-02-08 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502018&r=all 729. THE TALE OF TWO TRAVERSES Innovation and Accumulation in the First Two Centuries of U.S. Economic Growth Paul A. David (Stanford University &) Both the macroeconomic and the microeconomic evidence from U. S. economy’s experience over the past two centuries leads to a view of technological change (broadly conceived) as having not been “neutral” in its effects upon growth. The specific meaning of “non-neutrality” in this context is that technical and organizational innovation had effects upon the derived demands for factors of production, and these tended to alter the relative prices of the heterogeneous array of productive assets in the economy. By directly and indirectly impinging on relative real rates of remuneration established in the markets for particular types of human labor and skill, and for the services of specific tangible and intangible capital, “technological change” altered key conditions governing the absolute and relative growth rates of the various macroeconomic factors of production. On the other hand, because innovation exhibited strong cumulative features reflecting the influence of “localized learning,” past domestic factor market conditions exerted a persisting influence upon the globally non-neutral trajectory of American technological and organizational development. This essay thus explores two broad and related historical themes. Firstly, the non- neutrality of the impacts of innovations on the demand side of the markets for productive inputs implies that “innovation” should be understood as contributing to complex interactions among all the proximate “sources of growth.” Even though the latter are usually presented by exercises in “growth accounting” as distinct and separate dynamic elements contributing to the rise of labor productivity and per capita real output, the identification of the total factor productivity “residual” as the “contribution” of technological change is mistaken in ignoring the quantitatively important effect of successive capital- deepening “traverses” to the growth of labor productivity. The second theme underscores a fundamental contrast between the twentieth and the nineteenth century growth processes, in regard to the impacts of the predominant “bias” of the direction of innovation: the relative shift away from the accumulation of stocks of tangible reproducible capital and towards the formation of intangible productive assets by in investments in education, training and the search for new scientific and technological knowledge. JEL: E Date: 2005-02-09 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502019&r=all 730. On the Coexistence of Money and Bonds David Andolfatto (Simon Fraser University) This paper re-examines the so-called coexistence puzzle in terms of a modified version of the legal restrictions hypothesis initially put forth by Bryant and Wallace (1980). The modification is in terms of dropping a questionable assumption in the original hypothesis; i.e., that large denomination government bonds cannot be intermediated by private banks. This restriction is replaced by one that is arguably more palatable; i.e., that the intermediated monetary instruments created by private banks are not universally acceptable as payment for all exchanges ( unlike government money). The friction that gives rise to this latter restriction is one that is commonly employed in monetary models where fiat money is essential for exchange. JEL: E Date: 2005-02-09 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502020&r=all 731. Two Centuries of American Macroeconomic Growth From Exploitation of Resource Abundance to Knowledge-Driven Development Paul A. David (All Souls College, Oxford & Stanford University) This monograph is concerned with the nature of the process of macroeconomic growth that has characterized the U. S. experience, and manifested itself in the changing pace and sources of the continuing rise real output per capita over the course of the past two hundred years. A key observation that emerges from the long-term quantitative economic record is that the proximate sources of increases in real GDP per head in the century between 1889 and 1999 were quite different from those which obtained during the first hundred years of American national experience. Baldly put, the economy's ascent to a position of twentieth century global industrial leadership entailed a transition from growth based upon the interdependent development and extensive exploitation of its natural resources and the substitution of tangible capital for labor, towards a the maintenance of an productivity leadership through rising rates of intangible investment in the formation and exploitation of technological and organizational knowledge. The study's scope is indicated by the following: JEL: E Date: 2005-02-10 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502021&r=all 732. Understanding Digital Technology’s Evolution and the Path of Measured Productivity Growth: Present and Future in the Mirror of the Past Paul A. David (Stanford University & All Souls College, Oxford) Three styles of explanation have been advanced by economists seeking to account for the so-called 'productivity paradox'. The coincidence of a persisting slowdown in the growth of measured total factor productivity (TFP) in the US, since the mid-1970's, with the wave of information technology (It) innovations, is said by some to be an illusion due to the mismeasurement of real output growth; by others to expose the mistaken expectations about the benefits of computerization; and by still others to reflect the amount of time, and the volume of intangible investments in 'learning', and the time required for ancillary innovations that allow the new digital technologies to be applied in ways that are reflected in measured productivity growth. This paper shows that rather than viewing these as competing hypotheses, the dynamics of the transition to a new technological and economic regime based upon a general purpose technology (GPT) should be understood to be likely to give rise to all three 'effects.' It more fully articulates and supports this thesis, which was first advanced in the 'computer and dynamo' papers by David (1990, 1991). The relevance of that historical experience is re-asserted and supported by further evidence rebutting skeptics who have argued that the diffusion of electrification and computerization have little in common. New evidence is produced about the links between IT use, mass customization, and the upward bias of output price deflators arising from the method used to 'chain in' new products prices. The measurement bias due to the exclusion of intangible investments from the scope of the official national product accounts also is examined. Further, it is argued that the development of the general-purpose PC delayed the re-organization of businesses along lines that would have more directly raised task productivity, even though the technologies yielded positive 'revenue productivity' gains for large companies. The paper concludes by indicating the emerging technical and organizational developments that are likely to deliver a sustained surge of measured TFP growth during the decades that lie immediately ahead. JEL: E Date: 2005-02-10 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502022&r=all 733. Early Twentieth Century Productivity Growth Dynamics: An Inquiry into the Economic History of “Our Ignorance” Paul A. David (All Souls College & Stanford University) Gavin Wright (Stanford University) A marked acceleration of total factor productivity (TFP) growth in U.S. manufacturing followed World War I. This development contributed substantially to the absolute and relative rise of the domestic economy's aggregate TFP residual, which is observed when the 'growth accounts' for the first quarter of the twentieth century are compared with those for the second half of the nineteenth century. Two visions of the dynamics of productivity growth are germane to an understanding of these developments. One emphasizes the role of forces affecting broad sections of the economy, through spillovers of knowledge and the diffusion of general purpose technologies (GPT's). The second view considers that possible sources of productivity increase are multiple and idiosyncratic. Setting aside possible measurement errors, the latter approach regards sectoral and economy-wide surges of the TFP growth to be simply the result of which carried more weight than others. Although there is room for both views in an analysis of the sources of the industrial TFP acceleration during the 1920's, we find the evidence more compelling in support of the first approach. The proximate source of the TFP surge lay in the switch from declining or stable capital productivity to a rising output-capital ratio, which occurred at this time in many branches of manufacturing, and which was not accompanied by slowed growth in labor productivity. The 1920's saw critical advances in the electrification industry, the diffusion of a GTP that brought significant fixed capital-savings. But the same era also witnessed profound transformations in the American industrial labor market, followed the stoppage of mass immigration from Europe; rising real wages provided strong impetus to changes in workforce recruitment and management practices that were underway in some branches of the economy before the War. The productivity surge reflected the confluence of these two forces. This historical study has direct relevance for policies intended to increase the rate of productivity growth. In many respects, the decade of the 1920's launched the US economy on a high-growth path that lasted until the 1970's. If we hope to return to the growth performance of that era, we would be well advised to understand how it began. JEL: E Date: 2005-02-10 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502023&r=all 734. A Simple Model of Keynesian Unemployment Tetsuya Nakajima (Osaka City University) Constructing a general equilibrium model which compactly incorporates the markets for outputs, labor, money, and equities, we examine equilibrium unemployment. While a mechanism of an efficiency wage brings about nominal wage rigidity, unemployment occurring in our model definitely has Keynesian features. For instance, a reduction in wages rather enhances unemployment through a decrease in consumption. In addition, our paper shows a possibility of Pareto improvement through an increase in unemployment benefits. Keywords: Unemployment, Keynesian, Efficiency wages JEL: E12 E24 E62 Date: 2005-02-11 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502024&r=all 735. Monetary Policy Transparency in the Inflation Targeting Mariusz Jarmuzek (CASE Center for Social & Economic Research) Lucjan T. Orlowski (Sacred Heart University) Artur Radziwill (CASE Center for Social & Economic Research) This paper quantifies transparency of monetary policy in the three EU New Member States that have adopted direct inflation targeting strategy. Two measures of transparency are applied. The institutional measure reflects the extent to which a central bank discloses information that is related to the policymaking process. The behavioural measure reflects the clarity among the financial market participants about the true course of monetary policy. The paper shows an ambiguous association between the two measures of transparency, which may be attributed to the active exchange rate management policy that undermines the actual transparency proxied by the behavioural measure. Keywords: monetary policy, institutional and behavioural transparency, direct inflation targeting, EU New Member States, European Monetary Union JEL: E52 E58 P52 Date: 2005-02-12 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502025&r=all 736. Inflation Targeting and Inflation Behavior: A Successful Story? Marco Vega (Central Bank of Peru & London School of Economics) Diego Winkelried (Cambridge University) This paper estimates the effects of inflation targeting (IT) adoption over inflation dynamics using a wide control group. We contribute to the current IT evaluation literature by considering the adoption of IT by a country as a treatment, just as in the program evaluation literature. Hence, we perform propensity score matching to determine suitable counterfactuals to the actual inflation targeters. With this approach we find that IT has helped in reducing the level and volatility of inflation in the countries that adopted it. This result is robust to alternative definitions of treatment and control groups. We also find that the e ect of IT in the persistence of inflation is rather weak and not as categorical as the one associated with the mean and volatility of inflation. Keywords: Inflation Targeting, matching methods JEL: E Date: 2005-02-16 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502026&r=all 737. Optimal Taxation with Commitment in a Two-sector Neoclassical Economy Sheikh Selim (University of Southampton) This paper examines dynamic optimal income taxation problem in a two- sector neoclassical model where the government is able to commit to a sequence of tax plans for future. It finds that (1) while it is optimal to set a zero long run capital tax for the capital goods sector, steady state optimal capital tax can be nonzero in the consumption goods sector; (2) if the government faces an ex ante constraint of setting equal factor income taxes, the optimal levels of both capital tax rates are nonzero. The distortion created by the nonzero capital tax in consumption goods sector, given the other capital tax is set at zero, is in no way explosive in nature, since economic agents can avoid the compounding tax liabilities simply by shifting depreciated capital. Keywords: Optimal Taxation, Primal Approach, Two-sector Model, Ramsey Problem. JEL: H Date: 2005-02-21 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502027&r=all 738. Argentina: Trying to Make Sense of the Financial Tango Thierry Buchs The paper discusses and revisits some of the most popular stories behind the 2001 financial crisis in Argentina, i.e. the prolonged overvaluation of the peso owing to the Currency Board arrangement, the lack of fiscal adjustment, and the negative external environment which triggered a “sudden stop” of capital inflows. In doing so, the paper surveys and attempts to make sense of the contradictory theories and explanations surrounding these different stories. It also tries to shed some light on one possible missing link, that is the growth performance during the Convertibiity period. Finally, the paper discusses some important policy issues pertaining to the effects of global financial integration, such as capital account opening, exchange rate policies, alternatives to debt financing and the role of the international financial institutions. The central message is that the very nature of the Argentine crisis was not fundamentally different from the pattern of inconsistent macroeconomic policies which triggered many of the speculative attacks against the Peso in the 1970s and the 1980s. Although the problem was for once not monetary, the time inconsistency problem of the exchange rate policy followed between 1991 and 2001, together with the lack of nationally coherent fiscal and development policies, led to a classic debt solvency trap. From this perspective, the 2001 default does not provide for a new “type” of crisis, although crisis management. This being said, the real sector of the economy during the 1990s is certainly one of the most overlooked elements in the crisis, and certainly led to overoptimistic expectations about the capacity of the Argentine economy to rebound. Keywords: financial liberalization, currency crisis, debt, fiscal policy, Argentina JEL: E44 E62 F14 F31 F34 H3 H63 Date: 2005-02-23 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502028&r=all 739. The Inflation Dynamics of Pegging Interest Rates David Eagle (Eastern Washington University) A relatively simple analysis of central banks pegging interest rates applies whenever prices are determined in a price-flexible model where the central bank pursues a singular price-level or nominal-income target. Applying the model empirically in the U.S. and find that prior to 1980, the Federal Reserve would have met its price-level or nominal- income targets best by using the M1 definition of money. However, after 1982, the Federal Reserve would have more effectively met is targets by pegging the interest rate. We also further the analysis in a general- equilibrium, cash-in-advance model with explicit state-contingent securities that complete markets. Keywords: interest-rate targeting, price-level targeting, nominal-income targeting, cash-in-advance models, monetary economics, price determinism JEL: E Date: 2005-02-25 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502029&r=all 740. MONETARY POLICY AND NOT MONETARY CONTROL: A RETHINKING stanley c. w. salvary The view that prediction is the only important concern when policy is to be developed has led to the strict adherence to a money supply rule via the Quantity Theory of Money with its debilitating consequences. The monetarists place the emphasis on the level of the money supply in the determination of price level changes and monetary control is exercised. Along with this line of thinking, statistical elegance transcends empirical reality. Thus, the ensuing consequences of monetary control are not surprising. There are continuous increases in the general level of prices and increasing problems of unemployment, which fuel the flames of business downsizing. In this paper, an alternative to the monetarist explanation of the determination of the price level is advanced. The alternative explanation does not rely on changes in the supply of money but on changes in the composition of aggregate demand and supply. Absent monetary dislocation or revaluation of the currency, change in the general price level is attributed to the net effect of the realignment of relative prices. It is argued that a rethinking of the situation would result in monetary policy that is compatible with the economic setting and not monetary control which crowds out fiscal policy. Keywords: endogenous nature of money; general price level; money supply; Quantity Theory; price instability; consumer loans outstanding; Fisher effect; money supply rule. JEL: E Date: 2005-02-27 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502030&r=all 741. Mekanisme Transmisi Syariah di Indonesia ERWIN HARDIANTO (AIRLANGGA UNIVERSITY) Since Indonesia has two different type of banking system ( shariah and interest rate system) debtor or investor can chose appropriate system for their investment. When monetary instrument became tightening (high interest rate) so instrument from shariah system will substituted it. This situation arises because of nature from shariah instrument (revenue sharing) that flexible for price volatility. The other circumstances are revenue sharing can reduce inflation because with this system possibility to make equal growth among monetary sectors and real sectors appears. Such phenomenon like that will be investigate by VAR methodologies. Result from forecast error variance decompositions indices that shariah transmission mechanism move from one-month SBI (sertipikat bank indonesia) interest rate to inter-bank rate and finally affect shariah share. Proportion of shariah share shock to CPI inflation are small even that the shock remains ( have new equilibrium) within CPI inflation. It proves by IRF ( Impulse Response Function) from shariah share to CPI inflation. Keywords: shariah share, CPI inflation, transmission mechanism JEL: E Date: 2005-02-28 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502031&r=all 742. Measuring China's Fiscal Policy Stance Sebastian Dullien (Financial Times Deutschland) This paper argues that the tradtitional way of gauging a country's fiscal policy stance by looking at government budget deficit or cyclically adjusted budget deficits is misleading in the case of China, since a lot of what usually would be considered fiscal policy is conducted via investment by state owned enterprises. The paper therefore proposes a different indicator for the fiscal policy stance, constructed from government consumption, government expenditure, the state-owned- enterprises' investments and tax revenue. Using this indicator, it can be shown that fiscal policy has been strongly counter- cyclical in China over the past two decades. Keywords: Fiscal Policy, China, State-Owned Enterprises, Statistics JEL: E62 Date: 2005-02-28 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502032&r=all 743. THE ‘PURE SCIENCE’ APPROACH TO ECONOMICS AND MONETARY POLICY Stanley C. W. Salvary Perceptions of money do influence monetary policy, and monetary policy does have an impact on the functioning of the economy. For instance, a high interest rate policy usually entails high levels of bankruptcies and unemployment. Also, given a loss of confidence in the issuing authority (monetary dislocation), paper money can and does fail in all its functions as a medium of exchange, a unit of account, and a store of nominal value. In a money economy in which nominal money is the medium of exchange, nominal money prices reflect the underlying exchange ratios of the various commodities that are produced and exchanged for nominal money. In the absence of monetary dislocation (monetary revaluation or devaluation), any change in the nominal price of a commodity reflects a change in its purchasing power (a change in its exchange ratio vis-a-vis other commodities). Monetary policy prescriptions, which ignore this reality, result in significant displacement costs to members of society. A ‘pure science’ approach to economic research engenders policy prescriptions based upon assumptions of the economic system which are not aligned with the empirical reality. Hence, to avoid severe social costs, the ‘pure science’ approach to economics needs to be modified to deal with social reality. Keywords: monetary policy decisions; economic policy; federal funds target range; purchasing power uncertainty; interest rate targeting; reserves targeting; instruments for the prediction of observable phenomena. JEL: E Date: 2005-02-28 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502033&r=all 744. The Rise in Returns to Education and the Decline in Household Savings Areendam Chanda (Louisiana State University) This paper explores the consequences of rising returns to human capital investment on the personal savings rate. Over the past two decades, the return to college education has increased relative to high school education leading economists to argue the presence of 'skill biased technological progress'. The literature explaining household savings has also burgeoned considerably, motivated by its declining rate in the US over the past couple of decades. Stylized facts suggest a negative relationship between returns to education and savings rates across most of the past century and also a negative relationship between education spending and savings rates across OECD countries. In this paper, we present a model where a declining savings rate emerges as an outcome of an exogenously driven increase in the return to education. The link between the two is attributed to optimizing behavior of altruistic households. The results of our model are robust to the inclusion of life cycle savings and unintentional bequests. Some of the interesting results of our model are (i) a rise in the return to education raises education spending ratio by less than what it reduces the aggregate savings rate (ii) for some parameter values it actually reduces both the education spending rate and the aggregate savings rate and finally, (iii) it also raises the return to capital due to physical capital- human capital complementarity. Keywords: Skill Biased Technological Change, Savings, Education, Economic Growth JEL: D91 E21 O33 Date: 2005-02-28 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502034&r=all 745. A learning hypothesis of the term structure of interest rates Balazs Romhanyi (Hungarian Ministry of Finance) Recent empirical results about the US term structure are difficult to reconcile with the classical hypothesis of rational expectations even if time-varying but stationary term premia are allowed for. A hypothesis of rational learning about the conditional variance of the log pricing kernel is put forward. In a simple, illustrative consumption-based asset pricing model the long-term interest rate turns out to have an economic meaning distinct from both price stability and full employment, namely to measure the market perception of aggregate level of future risk in the economy. Implications for economic modeling and monetary policy are explored. Keywords: term structure; interest rate; learning; uncertainty; monetary policy JEL: D8 E4 E5 G12 Date: 2005-03-02 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503001&r=all 746. An estimated new Keynesian dynamic stochastic general equilibrium model of the Euro area Ratto M. (European Commission - Joint Research Centre) Roeger W. (European Commission - DG Economic & Financial Affairs) in’t Veld J. (European Commission - DG Economic & Financial Affairs) Girardi R. (European Commission - Joint Research Centre) In recent years a new consensus has emerged in macroeconomics in general and in model building in particular, the so called New Keynesian Paradigm (NKM). This paper applies Bayesian estimation techniques to a time series data set of the euro area and presents estimates of a DSGE model. The purpose of this paper is not to estimate the current version of the QUEST model directly with these methods but rather to estimate a prototype new generation New-Keynesian DSGE model. This model can then serve as a benchmark for an estimation of a QUEST specification. In fact in some dimensions the QUEST model may need to be adjusted to come closer to a DSGE model. Keywords: Bayesian Analysis, General Equilibrium Models, SDGE, Estimation JEL: E22 C11 D58 Date: 2005-03-03 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503002&r=all 747. Estimating potential output: a survey of the alternative methods and their applications to Brazil Nelson H Barbosa-Filho (Institute of Economics, Federal University of Rio de Janeiro) This paper presents the main issues involved in estimating potential output. The objective is to describe the alternative methods and analyze their application and implications for growth forecasts and macroeconomic policy in Brazil. The text emphasizes the determinants of potential output under fixed and flexible coefficients of production. Given the wide use of aggregate measures of total factor productivity in growth accounting, and the sensitivity of such a variable to economic assumptions and errors of measurement, the text also presents the main applied critiques and alternatives to aggregate growth-accounting exercises. The main conclusions are: (1) the annual potential growth rate of Brazil’s GDP varies substantially depending on the method and hypotheses adopted and, what is most important, potential GDP is not separable from effective GDP in the long-run; (2) growth-accounting and time-series studies of Brazil result in low potential-output growth rates because they extrapolate the slow growth of 1981-2003 to the future; (3) capital seems to be the main constraint on growth in Brazil and, therefore, a demand- led increase in investment can raise both its effective and potential output levels; (4) however, because of the slow adjustment of the capital stock, an investment boom can also hit a supply constraint before the stock of capital has time to adjust to the growth rate of investment; and (5) aggregate measures of potential output do not carry much information about the economy and, therefore, they should be complemented by sectoral estimates of capacity utilization to identify the bottlenecks in inter-industry flows and the corresponding demand pressures on inflation. Keywords: Potential Output, Brazil JEL: E Date: 2005-03-04 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503003&r=all 748. Money Demand in EU Countries: A Survey Frank Browne (EMI) Gabriel Fagan (EMI) Jerome Henry (EMI) Money demand is probably one of the most extensively studied economic relationship in applied economics. While useful surveys of existing literature are available, much of the attention has focused on the US. However, a considerable number of papers have recently been produced dealing with the situation in the EU, both at a country and at an area- wide level, with much of this research being carried out at EU central banks. Therefore, it appears useful to also examine this recent work, both in order to assess the current situation, and to guide future research. The first part of the paper covers a range of general issues arising such as the theoretical models, the specifications, the variables employed, and estimation techniques that have been used. It is emphasised that the basis of all these papers appears to be a benchmark model, in which money is a function of a scale variable, of interest rates and, when necessary, of variables accounting for financial innovation. The second part of the paper focuses on the estimated equations for the individual countries, paying particular attention to the case of Germany. A reasonable summary of the results obtained in general is that money demand equations perform fairly well in EU countries. Estimated parameters have the signs, if not always the magnitudes, predicted by economic theory. In most cases, the evidence points to the existence of the long-run equilibrium relation between money and a few determinant variables (real income, prices and interest rates) although the size of the adjustment coefficients indicate that deviations from the steady state may be of long duration. The next section provides a review of empirical evidence of aggregate money demand in grouping of EU countries taken together, an area in which interest is increasing as EMU approaches. In this strand of the literature, there seems to be a consensus that EU-wide equations yield satisfactory results, with area-wide equations often performing better than comparable national equations. Some reasons underlying this result are also examined. Keywords: Money demand, Cross-country comparisons, European union JEL: E41 E52 Date: 2005-03-07 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503004&r=all 749. The CNB’s Policy Decisions – Are They Priced in by the Markets? David Navratil (Eeska spooitelna) Viktor Kotlan (Eeska spooitelna) This paper asks to what extent the market prices in the future monetary policy decisions of the Czech National Bank (CNB), how this policy predictability has evolved over time, and whether the change in the central bank’s forecasting methodology in mid- 2002 had any impact. Using a sample up to mid-2004, the results are threefold. First, three- quarters of the CNB’s decisions were in line with medium-term money market expectations. Notwithstanding this relatively high predictability of CNB policy, the average mistake in the expectations was biased upwards: over the entire IT period the market has priced in a higher repo rate than has actually turned out to be the case. Second, our analysis shows that the period in which forecasts with an active monetary policy (unconditional forecasts) have been used is characterized by smaller “surprises” of the money market. On the one hand, this may be connected with a change in the CNB’s communication of the forecast, including releases of verbal comments on the interest rate trajectory that is consistent with the outlook. On the other hand, it may reflect a different economic environment in the second stage of IT in the Czech Republic. Third, we analyze whether there is convergence or divergence between the central bank’s forecast-consistent interest rate trajectory and market forward rates. We show that in most cases market rates converged toward the CNB’s interest rate trajectory after the publication of the forecast. Keywords: Financial market reaction, inflation targeting, monetary policy predictability, term structure of interest rates. JEL: E43 E44 E52 Date: 2005-03-10 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503005&r=all 750. Private Label Price Rigidity during Holiday Periods Georg Muller (Strategic Pricing Group) Mark Bergen (University of Minnesota) Shantanu Dutta (University of Sourthern California) Daniel Levy (Bar-Ilan University) Using weekly retail transaction scanner price data from a large U.S supermarket chain, we find significantly higher retail price rigidity for private label products than for nationally branded products during the Christmas and Thanksgiving holiday periods relative to the rest of the year. The finding cannot be explained by changes in holiday period promotional practices because we find that private label promotions appear to diminish at least as much as national brands. The increased rigidity of private label products relative to national brands is only partially accounted for by increased rigidity of wholesale prices. After ruling out other potential explanations, we suggest that the higher private label price rigidity might be due to the increased emphasis on social consumption during holiday periods, raising the customers’ value of nationally branded products relative to the private labels. Keywords: Price Rigidity, Holidays, Private Label, National Brand, Social Consumption JEL: E12 E31 L11 L20 L16 M21 M31 Date: 2005-03-10 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503006&r=all 751. Analisis y medicion de las interacciones en los Sistemas Regionales de Innovacion. Su relacion con la trayectoria historica y tecnologica de las regiones. Jon Mikel Zabala Iturriagagoitia (Institute of Innovation & Knowledge Management. INGENIO CSIC-UPV) La conceptualizacion de los Sistemas Regionales de Innovacion ( Cooke y Morgan, 1993; Autio et al., 2004) puede ser considerada como una extension y/o adaptacion del concepto de los Sistemas Nacionales de Innovacion surgidos a partir de los trabajos de Freeman (1987), Nelson (ed., 1993) y Lundvall (ed., 1992) y en el consiguiente desarrollo de Edquist (ed., 1997), consistente en analizar la existencia de los actores o agentes (instituciones, clusters, universidades, industrias…), las competencias o caracteristicas regionales, y las interacciones que a modo de Redes de Innovacion (Innovation Networks) se producen entre ellos, dotando de este modo a las autoridades regionales de una herramienta para la definicion de politicas para incrementar su competitividad. En este contexto, las practicas de cooperacion a traves de la interaccion de los diferentes agentes de los Sistemas de Innovacion, adquieren singular importancia. Sin embargo, la bibliografia existente sobre el tema es escasa, en especial en referencia a aquellos aspectos encaminados a su medicion. Es este vacio el que motiva la presente investigacion la cual se plantea como objetivo la definicion de una metodologia que permita abordar la medicion de las interacciones entre los agentes que constituyen un Sistema de Innovacion. Con la realizacion de la presente investigacion se espera contribuir con un modelo y una serie de metricas que permitan ayudar a cuantificar y a cualificar las interacciones que se producen entre los agentes que constituyen un Sistema de Innovacion, y en la medida de los posible, determinar la dependencia que estas tienen del territorio en el que se desarrollan, es decir, de la trayectoria historica y tecnologica del mismo. Keywords: Regional Innovation Systems, Path-dependence, Interactions, Indicators, Innovation Networks. JEL: O11 O18 P51 R11 Date: 2005-03-11 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503007&r=all 752. Contagion in Latin America Angelo Polydoro (EPGE - School of Pos-Graduate Economics) Latin America suffer before each democratic election due to its structural clivage, high social inequity and demands. The objective of this paper is to show that at elections, for some importants countries, the contagion effects increase the correlation of the return series markets. Keywords: Political Economics, Contagion Methods, Return Series, Electoral Cycles JEL: C20 N26 Date: 2005-03-11 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503008&r=all 753. AN ECONOMETRIC ANALYSIS OF THE EFFECTS OF AGGREGATE DEFENSE SPENDING ON AGGREGATE OUTPUT: THE CASE OF TURKEY, 1950-2002 Halicioglu Ferda This study utilizes the new macroeconomic theory and multivariate cointegration analysis in search of the effects of aggregate defense spending on aggregate output in Turkey. This study provides the empirical evidence that there is a strong positive long-run relationship between aggregate defense spending and aggregate output in Turkey over the estimation period. The findings of this study contradict the previous empirical results on the same topic obtained from the neoclassical production function and traditional regression analysis. JEL Classification: E69; E60; H50. Keywords: Aggregate defense spending; Aggregate output; Cointegration analysis, Turkey JEL: E Date: 2005-03-11 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503009&r=all 754. ACTIVE AND PASSIVE SEIGNIORAGE REVENUES: THE CASE FOR TURKEY 1970-1997 Ferda Halicioglu (The University of Greenwich, London) This study is concerned with the components of the total seigniorage revenues that have been collected by the Turkish governments during the years 1970-1997. Traditionally, a government can increase the monetary base in order to finance its expenditures partially. This form of monetary finance is related to active seigniorage revenues. On the other hand, as real economic growth takes place, a government can also benefit from this process as a result of an increase in demand for the real money balances which is termed as passive seignoirage revenues. This paper presents empirically that Turkish governments have benefited from both types of seignoirage revenues in order to finance its budget deficits during the years 1970-1997 but this policy seems to lose its effectiveness in the recent years due to the financial liberalization. Keywords: Seigniorage, Monetary, Policies, Budget Deficits, Turkey JEL: E52 E62 Date: 2005-03-11 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503010&r=all 755. THE BLACK ECONOMY IN TURKEY: AN EMPIRICAL INVESTIGATION Ferda Halicioglu (The University of Greenwich, London) The existing economic literature on the black economy and its measurable size is mainly based on industrialized western countries. This paper, however, tries to estimate the size of the black economy empirically in the case of a developing country: Turkey. According to the monetary approach that this paper has also adopted, the size of the black economy in Turkey has an ever increasing trend and reached nearly 10% of its GNP in 1997. Moreover, this paper also suggests that there is further scope for the black economy in Turkey since the tax burden is relatively low. And currently, the Turkish government is trying to increase taxes, which may lead to a further expansion in the size of the black economy in Turkey. Keywords: black economy, monetary policy, Turkey JEL: E Date: 2005-03-11 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503011&r=all 756. 'Learning to live in Euroland - The role of France and Germany' Stefan Collignon France and Germany have been the motor of European integration for half a century. During this process their economies have converged to a remarkable degree. Their present difficulties in terms of economic growth, unemployment and public debt are shown to depend largely on fallacies of macroeconomic management, rather than on the “European social model”, which they have adopted. However, European monetary union has profoundly changed the conduct of macroeconomic management in Euroland. Structural reforms alone cannot improve the economic performance in large regions of a monetary union, unless they are supported by fiscal policies determined at the European level. This opens important questions for democracy and the governance of Europe. Keywords: Learning to live in Euroland - The role of France and Germany France and Germany in the International Division of Labour JEL: E Date: 2005-03-15 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503012&r=all 757. The macroeconomics of obesity in the United States Peralta-Alva Adrian (University of MIami) Pere Gomis- Porqueras (University of Miami) The weight of the average American adult has increased by 12 pounds and obesity rates have doubled since the early 1960s. Recent studies show these changes in weight can be attributed to the dramatic rise in the consumption of prepared food and food away from home. We investigate the role of taxes and the gender wage gap in accounting for the trends in the composition of the food consumed by the average American adult. According to our general equilibrium analysis, the observed movements in the personal income tax rate and in the gender wage gap can account for more than one half of the increased caloric intake, consumption of prepared food, food away from home, and capital specific for cooking activities of Americans. Furthermore, our theory is also qualitatively consistent with the patterns of time use on market and food preparation activities of the data. Keywords: Obesity, Price per calorie, Gender wage gap, Taxes, Technological change, general equilibrium, price of food, relative price of food JEL: E Date: 2005-03-17 Date: 2005-03-28 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503014&r=all 758. Decomposing the co-movement of the business cycle: a time- frequency analysis of growth cycles in the eurozone Patrick Crowley (Texas A&M University - Corpus Christi) Jim Lee (Texas A&M University - Corpus Christi) This article analyses the frequency components of European business cycles using real GDP by employing multiresolution decomposition (MRD) with the use of maximal overlap discrete wavelet transforms (MODWT). Static wavelet variance and correlation analysis is performed, and phasing is studied using co-correlation with the eurozone by scale. Lastly dynamic conditional correlation GARCH models are used to obtain dynamic correlation estimates by scale against the EU to evaluate synchronicity of cycles through time. The general …ndings are that eurozone members fall into one of three categories: i) high static and dynamic correlations at all frequency cycles (e.g. France, Belgium, Germany), ii) low static and dynamic correlations, with little sign of convergence occurring (e.g. Greece), and iii) low static correlation but convergent dynamic correlations (e.g. Finland and Ireland) Keywords: Business cycles, growth cycles, European Union, multiresolution analysis, wavelets, co-correlation, dynamic correlation. JEL: E32 O52 Date: 2005-03-17 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503015&r=all 759. Interest Rate Rules and the Response to the Output Gap Juan Paez-Farrell (Hull University) Modern monetary policy analysis is built around the concept of an interest rate rule that responds to both inflation and output. This paper evaluates the quantitative implications of having a policy rule target different definitions of the output gap in a New Keynesian model with endogenous capital. One crucial result is that different model specifications result in alternative values for potential output, raising the issue of which output gap to target. The results of this paper suggest that targeting the true output gap can be well approximated by a rule that only reacts to inflation. Keywords: Monetary Policy Rules, Output Gap JEL: E31 E32 E43 E52 E58 Date: 2005-03-21 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503016&r=all 760. Monetary Aggregation William Barnett (University of Kansas) This entry on monetary aggregation will appear under that title in The New Palgrave Dictionary of Economics, 2nd edition, edited by Steven Durlauf and Lawrence Blume. The entry provides an up-to- date overview of state-of-the-art research on monetary aggregation and index number theory, from its origins in 1980 to the current time. At the end of this dictionary entry, emphasis is placed on ongoing research on extensions to risk and to multilateral aggregation within multicountry areas, such as the euro area. Research on monetary aggregation theory has been especially successful in solving the 'puzzles' that have appeared in the monetary economics literature over the past 35 years. Keywords: monetary aggregation, Divisia index, money demand, monetary policy, dictionary, Divisia monetary aggregates JEL: E41 G12 C43 C22 Date: 2005-03-21 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503017&r=all 761. Against Rigid Rules - Keynes's Economic Theory Elke Muchlinski (Freie Universitaet Berlin) This paper provides textual evidence of Keynes?s position on monetary policy and shaping international monetary relations. One result of my contribution is that the famous dichotomy 'rules versus discretion' is of no relevance to his economic theory, because he used the term 'rules' not in the meaning of a formal brilliantly designed notion. He definitely made a distinction between non-rigidly-fixed-rules and discretion. I give an explanation why his economic theory is not compatible with principles of constructivism, empiricism and ontological realism by referring to a key term of his economic writings, i.e., discretionary decision. Keywords: Key words: History of Economic Thought since 1925, Methodology, Central Banking, International Monetary Arrangements and Institutions JEL: B22 B E58 F33 Date: 2005-03-23 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503018&r=all 762. The Lucas Critique and Keynes Response.Considering the History of Macroeconomics Elke Muchlinski (Freie Universitat Berlin) Considering the history of macroeconomics it is surprising that Tinbergens theory of policy is identified with so-called Keynesian economics by Lucas and Lucasians. Keynesian macropolicy is accused of neglecting the role of expectations and the effects of any changes of institutions. Due to textual evidence this paper explains that both the disregard of expectations and the institutional evolutionary process can not be addressed to Keynes's analysis. Keywords: Keynes on expectations, macroeconomics and modelbuildung contra Lucas and Tinbergen JEL: B B B E E Date: 2005-03-23 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503019&r=all 763. EL RETARDO EXTERNO DE LA POLITICA MONETARIA EN EL CRECIMIENTO Y LA INFLACION: UNA REVISION TEORICA Y METODOLOGICA Jorge L. Andere (El Colegio de Mexico) In this work it is reviewed the external retard of monetary policy within the framework of theoretical and methodological resources present in this analysis. Within the scope of the economic theory, it is confirmed that model IS-LM-MC is useful and allows to analyze deeply the monetary policy for a small and open economy with a flexible exchange rate (Mexico case). It is also fundamental to discuss the transmission mechanisms (from a Neokeynesian perspective) , the basic concepts to understand the policy retards, and to bring to end the theoretical review, it is studied Poole ‘s analysis about the decision of taking monetary attaches or the interest rate as instruments of monetary policy. Within the methodological scope, the technique of Granger’s causation, different methods to apply the “ econometrics of retards” (Kyock, PDL and VAR) and Chow’s test of structural change are reviewed. Finally, in the conclusions, the author propounds the necessary variables for a further approach of the empiric analysis (statistical and econometric) of the problem which takes up our attention as well as the techniques that could be used and the length of their study. Keywords: Monetary Policy. Growth. Inflation. JEL: E Date: 2005-03-23 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503020&r=all 764. Asymmetric Wholesale Pricing: Theory and Evidence Sourav Ray (McMaster University) Haipeng Chen (University of Miami) Mark Bergen (University of Minnesota) Daniel Levy (Bar- Ilan University) Asymmetric pricing is the phenomenon where prices rise more readily than they fall. We articulate, and provide empirical support for, a theory of asymmetric pricing in wholesale prices. In particular, we show how wholesale prices may be asymmetric in the small but symmetric in the large, when retailers face costs of price adjustments. Such retailers will not adjust prices for small changes in their costs. Upstream manufacturers then see a region of inelastic demand where small wholesale price changes do not translate into commensurate retail price changes. The implication is asymmetric – small wholesale increases are more profitable because manufacturers will not lose customers from higher retail prices; yet, small wholesale decreases are less profitable, because these will not create lower retail prices, hence no extra revenue from greater sales. For larger changes, this asymmetry at wholesale vanishes as the costs of changing prices are compensated by increases in retailers’ revenue that result from correspondingly large retail price changes. We first present a formal economic model of a channel with forward looking retailers facing costs of price adjustment to derive the testable propositions. Next, we test these on manufacturer prices in a supermarket scanner dataset to find support for our theory. We discuss the contributions of the results for the asymmetric pricing, distribution channels and cost of price adjustment literatures, and implications for public policy. Keywords: Asymmetric Pricing, Channel Pricing, Costs of Price Adjustment, Menu Costs, Wholesale Prices, Channels of Distribution, Retailing, Scanner Data JEL: E31 E12 L11 L16 L22 L81 M21 M31 Date: 2005-03-24 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503021&r=all 765. Monetary Policy Adjustments on the Final Passage towards the Euro Lucjan T Orlowski (Sacred Heart University) This study reviews monetary policy options that are seemingly viable for adopting the euro by the new Member States of the European Union. A fully autonomous direct inflation targeting is believed to be suboptimal for convergence to the euro as it does not incorporate convergence parameters into the central bank reaction function and instrument rules. In an attempt to correct for such deficiency, this study advocates adopting a framework of relative inflation forecast targeting where a differential between the domestic and the eurozone inflation forecasts becomes the main objective of the central bank’s decisions. At the same time, some attention to the exchange rate stability objective becomes necessary for facilitating the monetary convergence process. Foreign exchange market interventions, rather than interest rate adjustments, are viewed as a preferred way of achieving this objective. Keywords: Monetary convergence, euro adoption, ERM II, new Member States JEL: E58 E61 F33 P24 Date: 2005-03-29 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503022&r=all 766. Structural Factor-Augmented VAR (SFAVAR) and the Effects of Monetary Policy Francesco Belviso (Princeton University & University of Chicago) Fabio Milani (Princeton University) Factor-augmented VARs (FAVARs) have combined standard VARs with factor analysis to exploit large data sets in the study of monetary policy. FAVARs enjoy a number of advantages over VARs: they allow a better identification of the monetary policy shock; they can avoid the use of a single variable to proxy theoretical constructs, such as the output gap; they allow researchers to compute impulse responses for hundreds of variables. Their shortcoming, however, is that the factors are not identified and, therefore, lack any economic interpretation. This paper seeks to provide an interpretation to the factors. We propose a novel Structural Factor-Augmented VAR (SFAVAR) model, where the factors have a clear meaning: 'Real Activity' factor, 'Price Pressures' factor, 'Financial Market' factor, 'Credit Conditions' factor, 'Expectations' factor, etc. The paper employs a Bayesian approach to extract the factors and jointly estimate the model. This framework is then suited to study the effects on a wide range of macroeconomic variables of monetary policy and non-policy shocks. Keywords: VAR, Dynamic Factors, Monetary Policy, Structural FAVAR. JEL: C32 C43 E50 E52 E58 Date: 2005-03-30 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503023&r=all 767. REGIME CHANGES AND THE SUSTAINABILITY OF FISCAL IMBALANCE IN EAST ASIAN COUNTRIES Ahmad Zubaidi Baharumshah (Universiti Putra Malaysia) Evan Lau (Universiti Malaysia Sarawak) In the aftermath of the 1997 Asian financial crisis, fiscal policy is playing a bigger role in smoothing the business cycle and getting the crisis-affected countries back on their growth paths. The main purpose of this paper is to assess empirically the fiscal policy regimes in five Asian countries using a formal framework based on the government’s intertemporal budget constraints (GIBC). For this purpose, we relied on an array of time-series methods and quarterly frequency data of nearly three decades that ended in 2003:Q2. Our conclusions are; first, the evidence indicates that the fiscal stance in Thailand and Korea are on their sustainable path while the Philippines and Malaysia satisfy only the necessary condition for sustainability. Second, we found that revenues are growing at a rate faster than government spending for Singapore, a country that have recorded large surpluses for most of the sample period. Third, the results show a one-way causation from expenditure to revenue for Korea, Singapore and Thailand. This finding indicates that reducing the size of government spending may improve fiscal budget deficits without having to undergo changes in the overall strategy. Fourth, we observed a long-run feedback causality in the revenue- expenditure nexus for the case of Malaysia and the Philippines, which may require fiscal synchronization instrument policies to moderate the post-crisis fiscal imbalances. Together, these results demonstrate the diverse fiscal patterns but they should be useful as a means of understanding the complexities of economic integration in the region. Keywords: fiscal sustainability, government intertemporal budget constraint, nonstationarity. JEL: E Date: 2005-04-01 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0504001&r=all 768. ASSESSING THE MEAN REVERSION BEHAVIOR OF FISCAL POLICY: THE CASE OF ASIAN COUNTRIES Evan Lau (UNIMAS) Ahmad Zubaidi Baharumshah (UPM) Maintaining sustainable fiscal policy has been increasingly important in the scope of economists and the policy makers as the key requirement of macroeconomic stability and sustainability of an economy. Without exception, the issue of fiscal sustainability also being in the spotlight for the developing countries especially in Asian, after the financial shock in 1997. Motivated by this development, this paper test the mean-reverting behavior of fiscal position by adopting families of univariate and panel unit root tests for the panel of ten Asian countries. Univariate unit root tests indicates that the fiscal position follows a non- stationary process of I(1) while mean reverting property were detected when we adopt the commonly used panel unit roots techniques. By utilizing the series-specific panel unit root test developed by Breuer et al. (2002, SURADF) that allows one to test for the presence of non-stationarity within individual cross sectional of the panel, we found that four out of ten countries in the panel are stationary suggesting little evidence of fiscal sustainability in Asian. These results also confirm the complexity properties of the panel data. Keywords: fiscal policy, mean reversion, sustainability, government intertemporal budget constraint, unit root tests, Asian JEL: E Date: 2005-04-01 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0504002&r=all 769. Quantity Theory of Money B.V. GOPINATH (No affiliation) Quantity Theory is a foolproof theory. This Theory is based on Law of Conservation of Wealth. This Theory tests positive with Law of Mass Action of reversible economic (chemical) reactions. Study of utility ( I call utility as all that a human being needs) helps us understand Quantity Theory better. Utility and water have similarities. Water is a form of matter and utility is a form of wealth. Water is universal solvent and so is utility. All other forms of wealth dissolve in utility. Water is in the form of H + OH. Similarly utility exists in the form of Goods and services which are otherwise called as WANTS by economists + money and money related forms of wealth that are called as MEANS by economists. According to Law of Law of Conservation, value of wants = value of means. Any economic entity, be it an individual, a family, a society, a business firm, a state or a nation tries to attain equilibrium between wants and means. Quantity Theory is relevant to all branches of Economics. Keywords: Law of Conservation of Wealth, Utility, Law of Mass Action of reversible chemical reactions, Economic reactions JEL: D1 Date: 2005-04-01 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0504003&r=all 770. An Overview of the Literature about Derivatives Chiara Oldani (Luiss Guido Carli) A derivative is defined by the BIS (1995) as “a contract whose value depends on the price of underlying assets, but which does not require any investment of principal in those assets. As a contract between two counterparts to exchange payments based on underlying prices or yields, any transfer of ownership of the underlying asset and cash flows becomes unnecessary”. This definition is strictly related to the ability of derivatives of replicating financial instruments2. Derivatives can be divided into 5 types of contracts: Swap, Forward, Future, Option and Repo, the last being the forward contract used by the ECB to manage liquidity in the European inter-bank market. For a further definition of contracts, which should although be known by the reader, see Hull (2002). These 5 types of contracts can be combined with each other in order to create a synthetic asset/liability, which suits any kind of need; this extreme flexibility and freedom widely explain the incredible growth of these instruments on world financial markets. In section 2 I will look at some micro-economic results about derivatives; in section 3 the issue of risk is addressed; in section 4 monetary policy results about derivatives are shown, and in section 5 fiscal policy results are shortly presented. In a brief statistical appendix some relevant data are presented. JEL: G Date: 2005-04-01 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0504004&r=all 771. L'evoluzione del ruolo di Poste Italiane nel sistema finanziario italiano Chiara Oldani (Luiss Guido Carli) Il sistema bancario e finanziario italiano utilizza l’innovazione per modificare la propria struttura e per cogliere nuove occasioni di profittabilita e di miglioramento della performance. Le banche italiane, sottoposte ad una crescente pressione concorrenziale a causa delle mutate condizioni di mercato domestico ed europeo, hanno risposto alla sfida dell’ICT (Information and Communication Technology) utilizzando l’innovazione sia per il back office (per la riduzione dei costi operativi e l’aumento dell’efficienza), sia per l’introduzione di nuovi strumenti finanziari e servizi alla clientela. L’informatizzazione ha reso possibile l’affacciarsi di Poste Italiane nel mercato della raccolta dei depositi italiani, modificando il panorama dell’offerta e inducendo maggiore concorrenza, e di implementare le attivita caratteristiche d’impresa, come la corrispondenza e il sistema dei pagamenti della Pubblica Amministrazione (P.A.). JEL: G L Date: 2005-04-01 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0504005&r=all 772. Globalisierung, Lohne und Arbeitslosigkeit Henri Nathanson (FernUniversitat Hagen) Die Heckscher-Ohlin-Modellierung mit den Faktoren nieder- und hoherqualifizierte Arbeitskraft und Arbeitslosigkeit beziehungsweise einem Minimallohn wird einer genaueren Analyse unterzogen und erfahrt dabei deutliche Kritik. Anschlie?end wird ein Ansatz zur Remodellierung der von ihr behandelten Problematik vorgestellt, der recht vielversprechend ist und in der Lage sein sollte, ihre Schwachen mehr als nur auszugleichen. Der Remodellierungsansatz leitet aus einer Verteilung der Faktoren nach Qualifikationsniveau uber eine stochastische Interpretation die Angebotsseite des Gutermarktes her. Keywords: Heckscher, Ohlin, skilled and unskilled workers, Europe America, specialisation, NIE, NIC, factor and goods distribution curve JEL: E10 F10 Date: 2005-04-02 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0504006&r=all 773. Defense Spending and economic growth in Turkey: an empirical application of new macroeconomic theory Ferda Halicioglu (the University of Greenwich, London) This study prsents new empirical evidence on the relationship between the level of of economic growth and defense expenditures in the case of Turkey for the period of 1950-2002. On using new macroeconomic and multivariate cointegration procedure, this study demonstrates empirically that there exists apositive relationship between aggregate defense spending and aggregate output in Turkey. In addition, the CUSUM and CUSUMSQ tests confirm the stability of aggregateb output function. The results obtained from this study are, by and large, in line with the previous studies concerning Turkey. Keywords: aggregate output, aggregate defense spending, cointegration, stability tests, Turkey JEL: E69 E60 H50 Date: 2005-04-06 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0504011&r=all 774. Real Estate Prices, Borrowing Constraints and Business Cycles -A Study of the Japanese Economy Suparna Chakraborty (University of Minnesota & Federal Reserve Bank of Minneapolis) This paper investigates the causes of business cycle fluctuations that Japan experienced over the period 1980 to 2000. To this end, I build a dynamic general equilibrium model with endogenous borrowing constraints where business cycle fluctuations are the result of TFP fluctuations and investment frictions. I identify land tax changes since 1984 as a possible source of investment frictions, the idea being that given a strong preference for debt-financing and widespread use of land as collateral in Japan, land tax changes will cause fluctuations in land price that can potentially affect output and investment by affecting borrowing capacity of firms. Calibrating the model using Japanese data and feeding in observed TFP and land taxes one by one and in unison, I find that TFP and land tax fluctuations can significantly account for observed fluctuations in output, but cannot account for land price fluctuations unless agents expect land tax changes to be permanent. I further identify redistribution of land holding between commercial and residential uses in response to land tax and TFP changes as an important channel through which the effect of these external fluctuations on output gets amplified. Observed data of land use in Japan provides evidence of such redistribution. Keywords: Real estate, borrowing constraint, business cycle, japan JEL: E Date: 2005-04-06 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0504012&r=all 775. Do Actions Speak Louder than Words? The Response of Asset Prices to Monetary Policy Actions and Statements Refet Gurkaynak (Federal Reserve Board) Brian Sack (Federal Reserve Board) Eric Swanson (Federal Reserve Board) We investigate the effects of U.S. monetary policy on asset prices using a high frequency event-study analysis. We test whether these effects are adequately captured by a single factor—changes in the federal funds rate target—and find that they are not. Instead, we find that two factors are required. These factors have a structural interpretation as a “current federal funds rate target” factor and a “future path of policy” factor, with the latter closely associated with FOMC statements. We measure the effects of these two factors on bond yields and stock prices using a new intraday dataset going back to 1990. According to our estimates, both monetary policy actions and statements have important but differing effects on asset prices, with statements having a much greater impact on longer- term Treasury yields. JEL: E Date: 2005-04-07 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0504013&r=all 776. Monetary Policy Shifts, Indeterminacy and Inflation Dynamics Paolo Surico (Bank of England & University of Bari) The New-Keynesian Phillips curve plays a central role in modern macroeconomic theory. A vast empirical literature has estimated this structural relationship over various postwar full-samples. While it is well know that in a New-Keynesian model a weak central bank response to inflation generates sunspot fluctuations, the consequences of pooling observations from different monetary policy regimes for the estimates of the Phillips curve had not been investigated. Using Montecarlo simulations from a purely forward-looking model, this paper shows that indeterminacy can introduce a sizable persistence in the estimated process of inflation. This persistence however is not an intrinsic feature of the economy; rather it is the result of self full-filling expectations. By neglecting indeterminacy the estimates of the forward- looking term of the Phillips curve are shown to be biased downward. The implications are in line with the empirical evidence for the UK and US. Keywords: indeterminacy, New-Keynesian Phillips curve, Montecarlo, bias, persistence JEL: E58 E31 E32 Date: 2005-04-08 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0504014&r=all 777. Exchange Rate Fluctuations in the New Member States of the European Union Zenon Kontolemis (International Monetary Fund) Kevin Ross (International Monetary Fund) This paper assesses the role of exchange rates in moderating the impact of economic disturbances in the new member states of the European Union, and finds some evidence in favour of this proposition. Exchange rates are mostly driven by real (demand) shocks, whilst output by real supply shocks. Nominal shocks, which have no long-run impact on output, are nevertheless important in explaining exchange rate fluctuations implying that less exchange rate flexibility may indeed be warranted in the run- up to the adoption of the euro. We find that while interest rate shocks generally do not explain exchange rate fluctuations, credit shocks matter in certain cases and seem to have considerable impact on exchange rate developments (e.g., for Poland). The analysis also shows that based on the average responses of exchange rates to different shocks, the adoption of narrow bands inside ERM II may be risky. Keywords: Exchange rate fluctuations, transmission economies, ERM II, EMU, structural VAR JEL: E Date: 2005-04-08 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0504015&r=all 778. Financial Crisis and Recovery: Learning-based Liquidity Preference Fluctuations Ryo Horii (Graduate School of Economics, Osaka University) Yoshiyasu Ono (ISER, Osaka University) This paper examines a mechanism of liquidity-preference fluctuations caused by people's learning behavior. % about the frequency of a liquidity shock. When observing a financial shock, they rationally update their belief so that the subjective probability of encountering it again is higher, immediately raise liquidity preference and reduce consumption. As a period without the shock lasts after that, they gradually decrease the subjective probability, lower liquidity preference and increase consumption. Particularly, when the shock is observed many times in succession, recovery is first slow because people do not easily change their pessimistic view, then gradually accelerates, and eventually slows down as they become fully optimistic. Keywords: Bayesian Learning, Liquidity Preference, Precautionary Motive, Markov Switching JEL: D83 E41 E32 Date: 2005-04-12 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0504016&r=all 779. The Behaviour of the Malawi Kwcha in a Liberalized Environment Kisu Simwaka (Reserve Bank of Malawi, P.O. Box 30063, Lilongwe, Malawi) The paper investigates some of the key factors that have influenced exchange rate movements since the foreign exchange market was liberalized in 1994. The paper adopts a general empirical specification of the exchange rate equation involving the interest rate and price differentials, as well as current account balance and net external flows to explain the exchange rate movements. In general, the empirical results indicate that increases in interest rates differential, has tended to attract, though insignificantly, private capital flows, leading to exchange rate appreciation. Deteriorations in current account, and reductions in net capital flows, on the other hand, are associated with depreciation of exchange rate. A rise in the price differential (widening gap between domestic and foreign prices) leads to exchange rate depreciation. Subject to the usual limitations of any econometric enquiry, the above results offer the following tentative conclusions. The insignificant impact of interest rate differential on attracting capital flows points to the need for government to address some structural bottlenecks. For instance, infrastructure services such road network and utilities (electricity and water supply) require improvement. Hence the current policy of lowering interest rates is therefore in line with maintaining a relatively depreciated currency. This implies that a demand for low interest rate regime must lead to a relatively weak Malawi kwacha internationally. On the other hand, changes in the current account balance have a bearing on the exchange rate market. Thus policies that influence exports and imports of goods and services also determine exchange rate movements. Likewise, prospects concerning donor funding influence the direction of market forces in determining the exchange rate movements. Therefore, government’s credibility regarding the use of external public funds and implementation of related reforms is important in as far as stability of the foreign exchange market and overall macroeconomic stability are concerned. Keywords: Exchange rate fluctuations, seasonality, error correction model JEL: E Date: 2005-04-13 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0504017&r=all 780. A Simplified Stock-Flow Consistent Post-Keynesian Growth Model Claudio Dos Santos (The Levy Economics Institute) Gennaro Zezza (The Levy Economics Institute & University of Cassino, Italy) A Simplified Stock-Flow Consistent Post-Keynesian Growth Model Claudio H. Dos Santos* and Gennaro Zezza** Abstract: Despite being arguably the most rigorous form of structuralist/post- Keynesian macroeconomics, stock-flow consistent models are quite often complex and difficult to deal with. This paper presents a model that, despite retaining the methodological advantages of the stock-flow consistent method, is intuitive enough to be taught at an undergraduate level. Moreover, the model can easily be made more complex to shed light on a wealth of specific issues. Keywords: Post-Keynesian Growth, Stock-Flow Consistency, Real- Financial Interactions JEL: E12 E17 E44 E60 Date: 2005-04-13 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0504019&r=all 781. A Crise Financeira Russa Bruno Jose Marques Pinto (Graduate School of Economics at Fundacao Getulio Vargas EPGE/FGV) Thais Machado de Matos Vilela (Graduate School of Economics at Fundacao Getulio Vargas EPGE/FGV) Ursula Silveira Monteiro de Lima (Graduate School of Economics at Fundacao Getulio Vargas EPGE/FGV) Fundamental sources of the Russian financial crisis in 1998 are discussed. Focus is made on the time horizon of judgements concerning sustainability of the economic policy. It is argued that the macroeconomic policy pursued by the monetary authorities was not robust in a medium run, but, in the absence of external shocks was far from the crisis area, and required moderate, feasible modifications to be viable in a medium run. After the sharp deterioration in the terms of trade the previously pursued policy was no more sustainable even in a short run. The implications of the crisis were aggravated by the overly optimistic expectations by the monetary authorities of the near- term recovery in the terms of trade. Keywords: Crise Financeira, Crise Cambial, Russia, Russa, Financial Crisis, Currency Crisis JEL: E5 Date: 2005-04-13 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0504020&r=all 782. Applied and Traditional Financial Approaches Within Multilevel Decision Systems Kirby Adam J.R. Faciane (Kirby Faciane / KAJR Faciane) One of the most important interfaces of a positive and normative theory of strategic behavior is the one with the discipline of finance. As a matter of fact, two of the mainstays of this discipline are capital investment theory and the capital- budgeting models that deal with long- term impacting decisions. The other main conceptual block is the group of financing decisions that have a decisive influence on the viability of a firm. The issue covered in this paper is the extent to which the traditional financial concepts and techniques are adequate to mirror and screen the strategic decisions. There is a multilevel decision system, and at the higher level-the strategic one-a financial approach different from the traditional one is applied: usual methods for project evaluation,, such as payback period or net present value, are eventually applied, as complementary instruments, after the higher-level resource allocation decision is taken. The economic and financial evaluation for such resource allocation emerges from an iterative process more complex than is usually assumed. The aims of this paper are to sketch the structure of the strategic decision process; to show the interaction between the higher-level decisions and the single investment choice; to investigate the nature of the strategic financial evaluation; and, finally, to formulate some ideas about a possible evolution of the discipline of finance that will allow the financial planner to interrelate with the other managers and the strategic planner in a creative and comprehensive way. The hope is to help managers test and back the industrial strategy from the financial point of view. The contribution of that activity to the success of a firm is often enormous and indispensable; the reality is full of companies with handsome products and business ideas that failed because they lacked adequate financial support in the penetration stage and in periods of fierce competition. Keywords: project management; strategic planning; decision systems; industrial strategy JEL: D1 G0 G00 G1 G3 G30 G38 G31 G32 Date: 2005-03-10 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpme:0503001&r=all 783. Towards a Relational Economics: Methodological Comments on Intellectual Property Strategy, Industrial Organisation, and Economics Eran Binenbaum (University of Adelaide, School of Economics) A core question addressed in this paper is: Can mainstream economic methodology be improved, and if so, how? In the process, it also considers the following questions: Is there much scope for improvement of intellectual property strategy? Is such improvement valuable? Can economics, and in particular the field of industrial organisation, help achieve it? The improvements in economic methodology that are suggested in this paper may be summarized as 'relational economics'. An important aspect of this methodology is an emphasis on inter-organisational relations. Keywords: Economic methodology, INdustrial organisation, Inter- organisational relations, Intellectual property strategy JEL: B41 L14 O34 Date: 2005-02-03 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpmh:0502001&r=all 784. The value of Marx analysis Francesco Schettino (Department of public economics, University of Rome 'La Sapienza') Questo articolo indaga sulla reale portata dell'analisi di Marx, basata in maniera fondamentale sulla propria teoria del valore e del plusvalore. L'idea innovativa dell'articolo consiste nel mostrare come sia possibile capire realmente l'analisi della teoria del valore di Marx, partendo da Marx stesso, ovvero dall'inizio del suo piu rilevante lavoro (Il Capitale), esaminando quindi come sia il lavoro l'unica qualita che e comune a tutte le merci consentendone la confrontabilita e la scambiabilita. Conseguentemente, parlare di Marx e della sua analisi, osservando unicamente il 'famoso' mistificante sistema di equazioni di prezzo a-la Sraffa significa indagare su una forma (il prezzo) prescindendo da conoscerne la sostanza (il valore). Keywords: Marxism, value, price JEL: B Date: 2005-02-24 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpmh:0502003&r=all 785. Joseph Schumpeter and Modern Nonlinear Dynamics William Barnett (University of Kansas) Morgan Rose (Washington University) This paper explores the conceptual links between Joseph Schumpeteraˆ™s theory of instability under capitalism and both theoretical and empirical research that has been done over the past fifteen years in nonlinear dynamics. Recent work related to chaos and bifurcation theory is shown to be consistent with Schumpeteraˆ™s view that instability is an inherent feature of capitalism, and that there is a positive, though difficult, role for stabilization policy as a result. The strong claim that modern research has proven Schumpeter correct is not made, but rather that existing recent research is not inconsistent with his views. Keywords: Schumpeter, Austrian Economics, unstable dynamics, nonlinear dynamics JEL: D5 Date: 2005-04-11 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpmh:0504001&r=all 786. Benchmarking real-valued acts Erio Castagnoli (Bocconii University, Milan, Italy) Marco LiCalzi (University of Venice, Italy) A benchmarking procedure ranks real-valued acts by the probability that they outperform a benchmark B; that is, an act f is evaluated by means of the functional V(f) = P(f > B). Expected utility is a special case of benchmarking procedure, where the acts and the benchmark are stochastically independent. This paper provides axiomatic characterizations of preference relations that are representable as benchmarking procedures. The key axiom is the sure-thing principle. When the state space is infinite, different continuity assumptions translate into different properties of the probability P. Keywords: sure-thing principle, state-dependent expected utility, measure representation approach, target-based reasoning JEL: D81 Date: 2005-02-02 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpmi:0502001&r=all 787. An Empirical Investigation into the Effect of Music Downloading on the Consumer Expenditure of Recorded Music: A Time Series Approach Lonnie K. Stevans (Hofstra University) The downloading of music from the internet has been proliferating over the past three years. The recording industry believes that this phenomenon is responsible for the decline in recorded music sales since the year 2000 and to a certain extent; this is supported by consumer surveys and previous studies that have used panel or cross-sectional data. In this analysis, an econometric, time-series model of consumer spending on tapes, LPs, and CDs is estimated which takes into account factors that are posited as effecting the consumption of recorded music, but not used in previous studies. The most significant finding is that music downloading, subsequent to 2000, affects consumer spending on tapes, LPs, and CDs through the price elasticity of demand. Falling DVD prices have also served to reduce the demand of recorded music during this same period. JEL: D1 D2 D3 D4 Date: 2005-02-08 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpmi:0502002&r=all 788. Constructive Utility Functions on Banach spaces Jose C. R. Alcantud (Universidad de Salamanca) Ghanshyam B. Mehta (University of Queensland) In this paper we prove the existence of continuous order- preserving functions on subsets of ordered Banach spaces using a constructive approach. Keywords: Utility function Banach space JEL: D11 Date: 2005-02-14 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpmi:0502003&r=all 789. A Model of Dynamic Liquidity Contracts Onur Ozgur (New York University) The main goal of this paper is to analyze the nature of long- term liquidity contracts that arise between lenders and borrowers in the absence of perfect enforceability and when both parties are financially constrained. We study an infinite horizon dynamic contracting model between a borrower and a lender with the following features: The borrower, is credit-constrained, faces a stochastic project arrival process every period, can choose to renege each period, and can save through the lender. Projects are indivisible. The lender is resource- constrained, and can commit to the terms of the contract as long as it is ex-ante individually rational to do so. We show that: (i) Enforcement problems and endogenous resource constraints can severely curtail the possibility of financing projects, (ii) the economy exhibits investment cycles, (iii) credit is rationed if either the lender has too little capital or the borrower has too little financial collateral. This paper’s technical contribution is to show the existence and characterization of financial contracts that are solutions to a non- convex dynamic programming problem. Keywords: Credit Rationing, Investment Cycles, Limited Enforceability, Liquidity Provision, Resource Constraints JEL: C6 C7 D9 G2 Date: 2005-02-15 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpmi:0502004&r=all 790. EQUILIBRIO GENERAL NO COMPETITIVO CON FORMACION ENDOGENA DE PRECIOS Edgar Villa (Universidad Externado de Colombia) Julian Arevalo (Universidad Externado de Colombia) Angelica Castro (Universidad Externado de Colombia) This article presents an equilibrium concept that, contrary to the traditional walrasian one, allows for the unbalance between supply and demand in different markets, making easier the analysis of those situations in which they differ persistently, as in the case of the labor market. Furthermore, the process of price setting becomes endogenous and it is shown that an equilibrium with endogenous price setting is a particular case of an equilibrium of fixed prices. Toward the end some examples are presented which help us to sustain these arguments. Keywords: Equilibrio No-Walrasiano, Formacion de Precios JEL: D1 D2 D3 D4 Date: 2005-02-17 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpmi:0502005&r=all 791. SOME CONCEPTIONS AND MISCONCEPTIONS ON REALITY AND ASSUMPTIONS IN FINANCIAL ACCOUNTING Stanley C. W. Salvary This paper addresses two problematic issues arising from the importation of terms into financial accounting: (1) the nature of economic reality; and (2) the role of assumptions. These two issues have stirred a lot of controversy relating to financial accounting measurements and affect attestation reports. This paper attempts to provide conceptual clarity on these two issues. Keywords: Economic reality; audit opinion; Savings and Loan Associations; aggregative analysis; planning data; simplifying assumptions; going concern; liquidating concern; realization. JEL: D1 D2 D3 D4 Date: 2005-02-21 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpmi:0502006&r=all 792. Privatization in Sub-Saharan Africa: Some Lessons from Experiences to Date Thierry Buchs Privatization became a central element of economic reforms in most countries in Sub-Saharan Africa during the 1990s. Yet, empirical evidence regarding the impact of privatization remains scarce. Since the seminal work of CAMPBELL-WHITE & BHATIA [1998], covering transactions on the African continent until 1996, no comprehensive assessment has been conducted. At a time when public opposition to further privatization is growing, this paper aims at giving a broad overview of the impact of privatization in Sub-Saharan Africa from 1991 to 2002 in the light of recent developments, and to derive some general trends and conclusions from the body of empirical evidence available to date. During this period, about 2300 privatization transactions have taken place, generating a total sales value estimated at US$ 9 billion. The main findings on the impact of privatization are as follows: first, privatization has had a minimal one-off impact on the budget; second, firm turnover and profitability have generally increased immediately following privatization but the evidence is mixed regarding the sustainability of the initial post- privatization upswing; third, employment has been adversely affected by privatization, although the latter has not resulted in massive layoffs in absolute terms; fourth, FDI and stock markets have played a limited role in privatization transactions despite some showcase transactions; fifth, regulation and competition have often been overlooked in the privatization process, and even where they have been dealt with, enforcement problems have greatly limited their effectiveness; sixth, privatization has created new political patronage opportunities, leading to numerous corruption scandals which have damaged the credibility of the privatization process; finally, social aspects of privatizations have generally been overlooked, reflecting the tendency to focus on privatization transactions, rather than on sector reorganization at large including wider social objectives. Keywords: Africa, competition, governance, privatization, regulation JEL: L33 L41 Date: 2005-02-23 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpmi:0502007&r=all 793. Capacity Utilization in Indian Paper Industry Kaustuva Barik (Indira Gandhi National Open University) The study estimates the rate of capacity utilization for the Indian paper industry for the period 1973-74 to 1997-98 on the basis of the theoretical framework of variable cost function. It is based on the basic premise that deviation from full utilization of capacity takes place as the levels of certain inputs, particularly capital, are fixed in the short-run and thus can be changed only in the long-run. In order to meet the increase (decrease) in demand, the industry puts the existing capital to more (less) intensive use. The study undertakes empirical estimation of a translog variable cost function by considering three variable inputs, viz., labour, energy and raw material and one quasi-fixed input, capital, on the basis of aggregate industry level data taken from annual survey of industries. It is found that under- utilization of capacity prevails in the Indian paper industry and there has been a decline in the rate of capacity utilization over time. Keywords: economic capacity utilization, equilibrium capital stock, Indian paper industry, temporary equilibrium, translog variable cost function JEL: D2 L6 Date: 2005-03-01 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpmi:0503001&r=all 794. Is Marshall's Utility a Form of Wealth Gopinath VadirajaRao Bangalore (No affiliation) Marshall's Utility which is nothing but need or usefulness satisfies the requirements of wealth. It can be expressed in units of wealth. It can be changed into other forms of wealth. It also moves from higher concentration to lower concentration. Like water in chemistry, this utility is a universal solvent in economics in which all other forms of wealth dissolve. This utility is made up of two components; A)goods and services that are otherwise called WANTS and B)money and money related wealth forms that are called MEANS. Utility complex of any economic system say, individual, family, state, nation, business entity, association etc., tries to attain equilibrium between these two components of wealth. True equilibrium is a rare phenomenon. As one approaches the true equilibrium state one gets more active economically. Deficit budgetting helps a nation approach equilibrium state and there by increases economic activity. Keywords: equilibrium, utility, law of conservation, JEL: E Date: 2005-03-03 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpmi:0503002&r=all 795. Price-Conditional Technology Lilyan E. Fulginiti (Iowa State University) This article extends the theory of the firm to cover situations in which the firm's technology set is conditional on expected prices. A 'generalized ' price effect is obtained that includes the traditional price effect as well as the technical change effect of prices. An example is presented. Keywords: Conditional technology, market prices, normal prices, technical change. JEL: Q Date: 2005-03-05 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpmi:0503003&r=all 796. Weber-Fechner's Law, Demand Function and Related Topics Kazuyasu Shigemoto (Tezukayama University) In our previous paper, we derive the demand function in the form p=du(x)/dx and we apply the Weber-Fechner's law to the utility function and we obtain the demand function in the familiar form p=A/x. We compare our derivation of the demand function with the standard one. The differences are i) different functional form of the utility function, ii) different objective function to aximize, iii) different treatment of the budget condition. We also study how much quantity of goods we should distribute to N persons in n kinds of goods. By adding each person's demand function, we obtain the total demand function. By the market equilibrium, we obtain the only unique solution of how much quantity of goods we should distribute to each person. The quantity of goods is distributed according to each person's preference. Keywords: Weber-Fechner's law, utility function, demand function, Pareto optimum JEL: D1 D2 D3 D4 Date: 2005-03-07 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpmi:0503004&r=all 797. Why pay extra? Tipping and the importance of social norms and feelings in economic theory Ofer H. Azar (Ben-Gurion University of the Negev) Tipping is a multi-billion-dollar phenomenon that standard economic models find hard to explain. I discuss several aspects of tipping and divide tipping to six different categories: reward- tipping, price- tipping, tipping-in-advance, bribery-tipping, holiday-tipping and gift- tipping, and discuss the economics of each category. Often tipping has economic justification, because it solves some inefficiency and increases welfare. Analyzing the potential reasons for tipping illustrates the importance of social norms and feelings (e.g. embarrassment and unfairness felt when one does not tip) in motivating economic behavior. Retaliatory behavior that workers sometimes exhibit towards non- tipping patrons is then discussed, and ideas for future research are proposed. Keywords: Tipping; Social norms; Feelings; Consumer behavior; Restaurants; behavioral economics JEL: D10 A12 D00 Date: 2005-03-08 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpmi:0503005&r=all 798. A Theory of Natural Addiction Trenton G. Smith (Washington State University) Attila Tasnadi (Corvinus University of Budapest) Economic theories of rational addiction aim to describe consumer behavior in the presence of habit-forming goods. We provide a biological foundation for this body of work by formally specifying conditions under which it is optimal to form a habit. We demonstrate the empirical validity of our thesis with an in- depth review and synthesis of the biomedical literature concerning the action of opiates in the mammalian brain and their e ects on behavior. Our results lend credence to many of the unconventional behavioral assumptions employed by theories of rational addiction, including adjacent complementarity and the importance of cues, attention, and self-control in determining the behavior of addicts. Our approach suggests, however, that addiction is 'harmful' only when the addict fails to implement the optimal solution. We offer evidence for the special case of the opiates that harmful addiction is the manifestation of a mismatch between behavioral algorithms encoded in the human genome and the expanded menu of choices- -generated for example, by advances in drug delivery technology--faced by consumers in the modern world. Keywords: self-control, endogenous opioids, addiction, behavioral ecology, neuroeconomics, autism JEL: D1 D2 D3 D4 Date: 2005-03-10 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpmi:0503006&r=all 799. Bid Increments in Second-Price Sealed Bid Auctions Richard Cox (University of Arkansas at Little Rock) This note concerns bidding in a hybrid first-price and second- price auction. The winning bidder sometimes pays his bid and sometimes pays an amount determined by the next highest bid. In internet auctions where bidders wait until the end of the auction to bid the auction reduces to a sealed-bid auction and the bid function we derive may be relevant in such cases. JEL: D44 Date: 2005-03-10 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpmi:0503007&r=all 800. CAN WE PREDICT THE OUTCOME OF THE INTERNATIONAL FOOTBALL TOURNAMENTS : THE CASE OF EURO 2000? Ferda Halicioglu (The University of Greenwich, London) This paper statistically analyses and attempts to predict the most likely winners of the Euro 2000 football tournament on the basis of the seasonal coefficients of variation (CVs) of the end- of-season points, which were computed from the top division final standings of participating countries of Euro 2000. The CV values computed from over ten seasons for the respective countries were used as a sole measurement value to rank the countries and to determine the most likely winners of Euro 2000. According to the three scenarios (long-term, mid-term, and short-term) based on the respective CV values of fifteen countries, France appeared to be the most likely country to win Euro 2000 and was closely followed by Spain. Keywords: Football, Ranking, UEFA, Sports forecasts. JEL: C40 C49 Date: 2005-03-11 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpmi:0503008&r=all 801. AN HISTORICAL PERSPECTIVE OF THE ACCOUNTING ENVIRONMENT: A GENERAL OUTLINE OF A WESTERN EUROPEAN AND NORTH AMERICAN LINKAGE stanley c. w. salvary It is recognized that the usefulness of accounting infor mation is contingent upon its (1) neutrality, (2) relevancy, and (3) reliability. Given that all socio-economic systems are comprised of participants and institutions, it would seem that the attainment of those three qualities is conditioned by a proper determination of the institutional arrangement. The relationship of the members of society to existing institutions emerges as the pivotal consideration. Institutions are the creations of society, therefore, it seems fair to state that they reflect the evolutionary process. The institutional arrangement has evolved over time, and an understanding of the evolution is fundamental to achieving neutrality, relevancy, and reliability of accounting information. The roles of the many and varied institutions as intended upon their creation by society can provide the basis for establishing disclosure requirements. Such requirements entail a proper balancing of many factors as constrained by costs versus benefits in the information disseminating process. In this regard, historical research can provide a tremendous insight into institutions and institutional roles as they have evolved. Such insight can facili tate the complex balancing problem of financial reporting. Keywords: The information disseminating process; institutional arrangements and their historical evolution; external financial reporting; adaptability, tractability, mobility, and shiftability; mercantilist philosophy; feudalism; manorial system; individual capitalism; joint stock company; industrialization; institutional innovation; monetary economy; JEL: D1 D2 D3 D4 Date: 2005-03-13 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpmi:0503011&r=all 802. The Insider's Curse Angel Hernando-Veciana (Universidad de Alicante) Michael Troge (ESCP-EAP) This paper studies an auction model in which one of the bidders, the insider, has better information about a common component of the value of the good for sale, than the other bidders, the outsiders. Our main result shows that the insider may have incentives to disclose her private information if she faces sufficiently strong competition from the outsiders. We also show that the insider can protect the value of her private information by hiding her presence in the auction to the outsiders. Finally, we analyze the implications of information revelation on the efficiency of the auction and on the auctioneer's expected revenue. Keywords: auctions, asymmetric information, information disclosure. JEL: D41 D44 D82 Date: 2005-03-17 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpmi:0503012&r=all 803. Equilibria in exchange economies with financial constraints: Beyond the Cass Trick V.F. Martins-da-Rocha (CEREMADE) L. Triki (CERMSEM) We consider an exchange economy under incomplete financial markets with purely financial securities and finitely many agents. When portfolios are not constrained, Cass (1984), Duffie (1987) and Florenzano--Gourdel (1992) proved that arbitrage-free security prices fully characterize equilibrium security prices. This result is based on a trick initiated by Cass (1984) in which one unconstrained agent behaves as if he were in complete markets. This approach is unsatisfactory since it is asymmetric and no more valid when every agent is subject to frictions. We propose a new and symmetric approach to prove that arbitrage-free security prices still fully characterize equilibrium security prices in the more realistic situation where the financial market is constrained by convex restrictions, provided that financial markets are collectively frictionless. Keywords: Exchange economies, incomplete financial markets, purely financial securities, nominal assets, constrained portfolios, collectively frictionless financial markets, equilibrium security prices, arbitrage-free security prices. JEL: C62 D52 G10 Date: 2005-03-29 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpmi:0503013&r=all 804. Do Parents Help More their Less Well-Off Children? Evidence from a Sample of Migrants to France Francois-Charles Wolff (Universite de Nantes) Seymour Spilerman (Columbia University) Claudine Attias-Donfut (CNAV) Through an investigation of parental motives, this paper examines how parents decide on the allocation of their resources within the family when there are several offspring. From a theoretical viewpoint, inter vivos transfers may be explained either by altruism or by an exchange motive. Though unequal sharing is expected under both hypotheses, under altruism parents should direct their assistance to less well off children. Analogously, under an exchange motive we expect support to be channeled to children who live nearby their parents. We assess the relevance of the two transfer motives using the PRI survey, conducted in 2003, on a sample of immigrants living in France. Unequal sharing is frequently observed, and children are more likely to receive financial transfers when they are in poor circumstance, but not necessarily when living in proximity to parents. This is the case even after controlling for unobserved heterogeneity with fixed effects models. We also emphasize the role of cultural factors, especially religion, as determinants of the parental allocation among children. Keywords: altruism, exchange, inter-vivos transfers, intrahousehold allocation, unequal sharing, cultural effects JEL: D31 D62 D64 J2 J12 Date: 2005-04-02 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpmi:0504001&r=all 805. Relative Thinking Theory Ofer H. Azar (Ben-Gurion University of the Negev) The article presents a theory that I denote “Relative Thinking Theory,” which claims that people consider relative differences and not only absolute differences when making various economics decisions, even in those cases where the rational model dictates that people should consider only absolute differences. The article reviews experimental evidence for this behavior, summarizing briefly several experiments I conducted, as well as some earlier related literature. It then discusses how we can think about relative thinking and formalize this behavior. Later, the article addresses several related questions: why do people exhibit relative thinking, whether it is beneficial to do so, and whether experience and education can change relative thinking. Finally, the article explains why firms seem to respond to relative thinking of consumers, and raises additional implications of relative thinking for economics and management. Keywords: Relative thinking, relative differences, behavioral decision making, behavioral economics, psychological economics, Weber's law, absolute differences, percentages, ratios JEL: D10 M30 L10 C91 A12 Date: 2005-04-09 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpmi:0504002&r=all 806. Competitive markets and “as if” methodology Antonio Quesada (Universitat Rovira i Virgili, Spain) Two results showing the limitations of the “as if” methodology are proved under relatively mild assumptions. In an interpretation of the results, a competitive market cannot simulate the outcome of a market M in which the single price assumption does not hold. In a second interpretation, the market M resulting from the aggregation of a finite number of competitive markets is not competitive. In both cases there is no ground to sustain the fiction that M operates as if it were competitive. Keywords: “As if” methodology; Competitive market; Market aggregation; Market simulation; Price aggregation. JEL: D40 E10 Date: 2005-04-11 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpmi:0504003&r=all 807. Probabilistic Patents Michael R. Baye (Kelley School of Business, Indiana University) John Morgan (Haas School of Business & Department of Economics, UC Berkeley) We model a homogeneous product environment where identical e- retailers endogenously engage in both brand advertising (to create loyal customers) and price advertising (to attract 'shoppers'). Our analysis allows for 'cross-channel' effects; indeed, we show that price advertising is a substitute for brand advertising. In contrast to models where loyalty is exogenous, these crosschannel effects lead to a continuum of symmetric equilibria; however, the set of equilibria converges to a unique equilibrium as the number of potential e-retailers grows arbitrarily large. Price dispersion is a key feature of all of these equilibria, including the limit equilibrium. While each firm finds it optimal to advertise its brand in an attempt to 'grow' its base of loyal customers, in equilibrium, branding (1) reduces firm profits, (2) increases prices paid by loyals and shoppers, and (3) adversely affects gatekeepers operating price comparison sites. Branding also tightens the range of prices and reduces the value of the price information provided by a comparison site. Using data from a price comparison site, we test several predictions of the model. Keywords: Price dispersion JEL: D4 D8 M3 L13 Date: 2005-04-14 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpmi:0504004&r=all 808. Estimating Firm-Level Demand at a Price Comparison Site: Accounting for Shoppers and the Number of Competitors Michael R. Baye (Kelley School of Business, Indiana University) J. Rupert J. Gatti (Trinity College, University of Cambridge) Paul Kattuman (The Judge Institute of Management, University of Cambridge) John Morgan (Haas School of Business & Department of Economics, University of California, Berkeley) Clearinghouse models of online pricing---such as Varian (1980), Rosenthal (1980), Narasimhan (1988), and Baye-Morgan (2001)--- view a price comparison site as an 'information clearinghouse' where shoppers and loyals obtain price and product information to make online purchases. These models predict that the responsiveness of a firm's demand to a change in its price depends on the number of sellers and whether the price change results in the firm charging the lowest price in the market. Using a unique firm-level dataset from Kelkoo.com (Yahoo!'s European price comparison site), we examine these predictions by providing estimates of the demand for PDAs. Our results indicate that the number of competing sellers and both the firm's location on the screen and relative ranking in the list of prices are important determinants of an online retailer's demand. We find that an online monopolist faces an elasticity of demand of about - 2, while sellers competing against 10 other sellers face an elasticity of about -6. We also find empirical evidence of a discontinuous jump in a firm's demand as its price declines from the second-lowest to the lowest price. Our estimates suggest that about 13% of the consumers at Kelkoo are 'shoppers' who purchase from the seller offering the lowest price. Keywords: Internet, Price Dispersion, Advertising JEL: D1 D2 D3 D4 Date: 2005-04-14 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpmi:0504005&r=all 809. Contracting for Information under Imperfect Commitment Vijay Krishna (Department of Economics, Penn State University) John Morgan (Haas School of Business & Department of Economics, University of California, Berkeley) Organizational theory suggests that authority should lie in the hands of those with information, yet the power to transfer authority is rarely absolute in practice. We investigate the validity and application of this advice in a model of optimal contracting between an uninformed principal and informed agent where the principal's commitment power is imperfect. We show that while full alignment of interests combined with delegation of authority is feasible, it is never optimal. The optimal contract is 'bang-bang'---in one region of the state space, full alignment takes place, in the other, no alignment takes place. We then compare these contracts to those in which the principal has full commitment power as well as to several 'informal' institutional arrangements. Keywords: Imperfect commitment, optimal contracting, delegation JEL: D23 D82 Date: 2005-04-14 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpmi:0504006&r=all 810. The Benefits of Information on the Efficient Usage of Consumer Durables Isamu Matsukawa (Musashi University) This paper attempts to measure how information provision affects usage of consumer durables, using data on residential demand for electricity in Japan. Assuming that consumer preferences are well described by a translog indirect utility function, a discrete- continuous model of information and usage choice is estimated to examine the effects of information about efficient usage of electric appliances. The empirical results indicate that information provision contributed to energy conservation. Keywords: information, energy conservation, discrete-continuous model JEL: P Q Z Date: 2005-02-01 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpot:0501005&r=all 811. Monitoring Managerial Efficiency in the Performing Arts: A Regional Theatres Network Perspective. Francisco Marco-Serrano Managerial efficiency within the performing arts programming can be understood as the technical efficiency of transforming the resources cultural managers have available into a determined cultural output. Through this explanation different conceptions on the finished performance product it leads us to select two different output variables (number of performances, and number of attendances). In this way, three different models are considered regarding those conceptual points of view. Data on the Circuit Teatral Valencia, a Spanish regional theatres network, is used to develop empirically the concept of Managerial Efficiency and set up a framework to allow us to monitor it. Keywords: Data Envelopment Analysis, Managerial efficiency, Performing Arts JEL: C14 D20 Z10 Date: 2005-02-01 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpot:0502001&r=all 812. Knowing what is good for you. Empirical analysis of personal preferences and the 'objective good' Orsolya Lelkes (European Centre) This paper aims to test empirically if certain frequently used measures of well-being, which are regarded as valuable properties of human life, are actually desired by people. In other words, it investigates whether the “expert judgments” in social science overlap with social consensus on what the “good life” is. The starting hypothesis is that there is an overlap between these two in the case of basic needs. For the analysis, individuals’ self- reported life satisfaction is used as a proxy for “utility”, based on survey data, which includes about 30 000 individuals from 21 different European countries. The results indicate that the commonly used measures of well-being - labour market situation, health, housing conditions and social relations - significantly influence people’s satisfaction, ceteris paribus. Next, the stability of preferences is tested using Hungarian data from the 1990s. The results indicate that there was only very limited change in the relationship between life satisfaction and basic measures of well-being despite the landslide of societal and economic transformation. Keywords: quality of life, capabilities, happiness, basic needs, economic transition JEL: D63 I31 Date: 2005-02-01 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpot:0502002&r=all 813. Trade Policies in Central Asia after EU Enlargement and before Russian WTO accession: Regionalism and Integration into the world economy. Richard Pomfret (University of Adelaide, School of Economics) This paper analyses the choices between regionalism and multilateralism, and the impact of WTO membership on the five Central Asian countries. The two main sections analyse (1) why the large number of regional trade agreements which the Central Asian countries have signed have had little economic impact, and ( 2) the consequences for the Central Asian countries of Chinese and Russian WTO membership and the consequences of the current Central Asian applicants’ (Kazakhstan, Tajikistan and Uzbekistan) own WTO accession. During the1990s, many regional trade agreements were signed - arrangements both among the Central Asian countries, and between Central Asian countries and their neighbours (Russia to the north, China to the east, and Iran and Turkey to the south) – but not implemented and, although the Kyrgyz Republic became a WTO member in 1998, the Central Asian countries vacillated between pursuing regional and multilateral trade policy avenues. The Central Asian countries’ relationship to the WTO became a more pressing issue after China’s long-running WTO accession negotiations were successfully concluded in December 200 and as Russian negotiations are move forward. At the same time the push towards regionalism is also affected by external events such as the European Union’s deeper integration, symbolized by the appearance of euro banknotes in 2002, and the eastward expansion of the EU in 2004. Keywords: regionalism; WTO; Central Asia JEL: P33 F13 F14 Date: 2005-02-03 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpot:0502003&r=all 814. Sequencing Trade and Monetary Integration Richard Pomfret (University of Adelaide, School of Economics) Regional integration for at least the last sixty years has focused on trade integration. Balassa’s canonical taxonomy of regional trading arrangements is often interpreted as a sequence from free trade area through customs union and common market to economic union. In the 1980s the concept of deep integration went beyond trade with its focus on policy harmonization, which came to include monetary integration, but it presupposed trade integration as the first step in the regional integration sequence. In Asia there has been very little trade integration through regional agreements - ASEAN is the most ambitious project, but even there actual achievements in trade integration have been limited. When discussion of monetary integration began in East Asia after 1997, it was in the absence of trade integration. The conventional view would see this as an obstacle to greater regional integration, but some proponents of Asian regionalism saw monetary integration as a step towards promoting trade integration, reversing the orthodox sequence. The two theoretical literatures (customs union theory and optimal currency area theory) were distinct and there remains a disconnect between the trade and monetary integration literature. This paper re- evaluates the global cross-country evidence on the relationship between trade integration and monetary union. It then applies the results to the prospects for monetary union before trade integration in East Asia, and to the consequences of monetary union for trade integration. Keywords: currency union; customs union JEL: F02 F13 F33 Date: 2005-02-03 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpot:0502004&r=all 815. A MESSAGE TO GORBACHEV:REDISTRIBUTE THE WEALTH Edgar L. Feige (University of Wisconson-Madison) The transition from a planned to a market oriented economy requires a complex amalgam of stabilization, liberalization and privatization policies. This paper outlines a combination of policies believed to be necessary, if not sufficient to enlist the efficiency of market mechanisms along with a more equalitarian distribution of wealth that can provide a natural safety for citizens during the transition process. Reference: Challenge, May/June 1990, pp. 46-53 Keywords: transition, Russia, stabilization, liberalization, privatization, property rights, social safety net, voucher scheme, JEL: P2 P3 O1 O2 E6 H1 Date: 2005-02-04 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpot:0502005&r=all 816. A Review of the Valuation of Environmental Costs and Benefits in World Bank Projects Patricia Silva (World Bank) Stefano Pagiola (World Bank) The World Bank’s Operational Policy on Economic Evaluation of Investment Operations requires that project evaluations include all the costs and benefits generated by the project, including environmental costs and benefits. Theis review examines the use of environmental valuation in 101 projects in the World Bank’s environmental portfolio approved in fiscal years 2000, 2001, and 2002. It has three broad objectives. First, it examines the extent to which environmental costs and benefits have been incorporated in the economic analysis of projects. Second, it examines how well valuation was used. Third, it seeks to identify areas of weakness so as to feed into plans for capacity building. The results show that the use of environmental valuation has increased substantially in the last decade. Ten years ago, one project in 162 used environmental valuation. In recent years, as many as one third of the projects in the environmental portfolio did so. While this represents a substantial improvement, there remains considerable scope for growth. Keywords: environmental economics, valuation of environmental impacts, cost-benefit analysis JEL: P Q Z Date: 2005-02-08 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpot:0502007&r=all 817. Knowing what is good for you. Empirical analysis of personal preferences and the “objective good” Orsolya Lelkes (European Centre for Social Welfare Policy & Research) This paper aims to test empirically if certain frequently used measures of well-being, which are regarded as valuable properties of human life, are actually desired by people. In other words, it investigates whether the “expert judgments” in social science overlap with social consensus on what the “good life” is. The starting hypothesis is that there is an overlap between these two in the case of basic needs. For the analysis, individuals’ self- reported life satisfaction is used as a proxy for “utility”, based on survey data, which includes about 30 000 individuals from 21 different European countries. The results indicate that the commonly used measures of well-being - labour market situation, health, housing conditions and social relations - significantly influence people’s satisfaction, ceteris paribus. Next, the stability of preferences is tested using Hungarian data from the 1990s. The results indicate that there was only very limited change in the relationship between life satisfaction and basic measures of well-being despite the landslide of societal and economic transformation. Keywords: quality of life, capabilities, happiness, basic needs, economic transition JEL: D63 I31 Date: 2005-02-13 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpot:0502008&r=all 818. Religion Maximo Rossi (Departamento de Economia, Facultad de Ciencias Sociales, Universidad de la Republica) Ianina Rossi (Departamento de Economia, Facultad de Ciencias Sociales, Universidad de la Republica) The present paper is a first attempt to measure and explain, from an economic perspective, the religious behavior of uruguayans (women in this stage), and compare the results with those obtained for some Latin American and developed countries. In this first stage, the efforts were concentrated in the interpretation of the religious behavior from an microeconomic perspective, considering the individual decision about church attendance and its frequency. With this aim, we analyze the relation between the religious degree of the individuals ( measured through a variable created combining two questions of the used surveys: Are you religious? How often do you go to the temple?) and diverse personal characteristics such as age, education, marital status, among others (solely for women from 25 to 54 years old in the case of Uruguay). We confirmed that uruguayans are less religious than the people of the other countries considered (Chile, Spain, Mexico and the United States), that the religious activity is more intense for women and older people, and that the education level have an ambiguous effect on the intensity of the religious activity. In addition, in the case of Uruguay, greater levels of deprivation imply greater levels of religious activity. Keywords: church attendance, religion, religious activity, religion and socioeconomic variables. JEL: P Q Z Date: 2005-02-21 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpot:0502009&r=all 819. Agricultural Protection in Developing Countries Lilyan E. Fulginiti (Iowa State University) Jason F. Shogren (Iowa State University) The present paper explores why farmers are taxed in poor countries and subsidized in rich countries. Using the economic theory of contests to come to an understanding of the incentives for agricultural protectionism, we first sketch a framework for an excludable and rivalrous rent. We then apply this framework to agricultural protectionism in developing countries. Keywords: Agricultural protection, public choice, collective action, excludable and rivalrous rent, developing countries JEL: Q Date: 2005-02-28 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpot:0502010&r=all 820. Public Inputs and Productivty in the Agricultural Sector: A Dynamic Dual Approach Alejandro Onofri (University of Nebraska) Lilyan E. Fulginiti (University of Nebraska) This paper introduces a dynamic model of productivity measurement based on recent endogenous growth theories. The model presented in this study is based on dynamic duality theory and incorporate public goods (public capital and R&D) as external factors to the firms. It also rationalizes the provision of public inputs by a benevolent social planner that internalizes the effects of them. Moreover, the Le Chatelier principle is extended for this dynamic duality modelin which the public factors are quasi-fixed for the firm and all firm-specific inputs can be adjusted in the long run. Therefore, increasing returns to scale over all inputs can still be tested at the long-run equilibrium perceived by the firm. Additionally, this model permits deriving testable hypotheses related to the two conditions of endogenous growth theory mentioned above. The model is tested with data for the U.S. agricultural sector. Keywords: endogenous growth, dynamic productivity, public goods, duality, U.S. agriculture JEL: H54 O13 Q16 Date: 2005-02-28 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpot:0502011&r=all 821. Chinese Regional Agricultural Productivity in the 1990'a Haizhi Tong (University of Nebraska) Lilyan E. Fulginiti (University of Nebraska) A nonstochastic Malmquist Index and a stochastic frontier production function are estimated to examine agricultural productivity growth in Chinese provinces during the 1990’s. Results for both methods indicate high productivity growth in the mid 1990’s with a declining trend thereafter. While the Malmquist index picks up a reversal of this trend in 2000-2001, this is not evident in the stochastic frontier estimates. Both methods identify the same regions as the most productive. Variables representing public inputs such as education, research and infrastructure are shown to have an important impact on differential provincial performance. Keywords: Agricultural productivity growth, China, provinces, Malmquist index, stochastic frontier, research and infrastructure JEL: Q12 O47 O53 Date: 2005-02-28 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpot:0502012&r=all 822. Social relations and economic welfare at an individual level Giacomo Degli Antoni (University of Parma) Over the last few years, many studies have shown that social networks are important to the economic progress and the development of societies. In order to explain the determinants of social network formation, it is important to understand the motivations characterising the decisions of single agents with respect to their social behaviour. This paper presents evidence, through Italian microdata representative of the entire Italian population, that the quality and quantity of interpersonal relations of agents can increase their economic welfare. The analysis proposed seems to indicate that individuals also have an economic incentive to invest in social relations. Two proxies of interpersonal relations at an individual level are used. The first one, that is considered as a proxy for formal social relations, reflects the propensity of individuals to participate in different groups. The second one, that is interpreted as a proxy for the informal social relations, reflects the level of satisfaction of personal relationships of single agents with friends. This proxy is very useful to capture the quantitative aspects of informal interpersonal relations and the qualitative ones. Both formal and informal social relations of single agents seem to have a positive effect on their level of household economic welfare. This result proves robust to the inclusion of a variety of control variables and the use of different econometric methods. Keywords: social interactions, social relations and economic welfare JEL: P Q Z Date: 2005-03-01 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpot:0503001&r=all 823. Interactions in Innovation Process as a Factor of Innovativeness and Efficiency of Enterprises – Analysis Based on the Polish Innovation System. El?bieta Wojnicka (University of Information Technology & Management in Rzeszow) According to the concept of an innovation system, an innovation system consists of institutions and interactions between them. Thanks to them a given economy is an efficient mechanism of distribution of knowledge for its further recombination. The concept shows how the linear and network- based character of innovation process affects the functioning of an economy, which for growth depends on innovations. The analysis of the impact of the more intense interactions of the Polish enterprises in the innovation process on their innovativeness and competitiveness proves the concept of innovation system to be right. Analysis performed through different methods confirmed the validity of the hypothesis that there is a positive relationship between an interactive way of innovation activity and the effectiveness of innovation process and hence success of firms. Keywords: innovation process, innovation system, enterprises, networks and interactions JEL: P Q Z Date: 2005-03-11 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpot:0503002&r=all 824. Regional Innovation System in the Pomeranian Province of Poland El?bieta Wojnicka (The Gdansk Institute for Market Economics) Przemys?aw Rot (The Gdansk Institute for Market Economics) Piotr Tamowicz (The Gdansk Institute for Market Economics) Tomasz Brodzicki (The Gdansk Institute for Market Economics) The concept of an innovation system stresses the role of interaction and co-operation between different agents creating and distributing knowledge and innovation. In the post-communist countries like Poland, most of the institutions similar to those of mature market economies are already established. However they not yet embedded in the economy. That is one of the reasons why co-operation between agents in the Polish innovation system is very weak, which results in a very low level of innovation throughout the entire economy. In 2001, The Gdansk Institute for Market Economy undertook research into the regional innovation system of one of the Polish regions – the Pomeranian Region. The results of the research showed that the majority of firms in the region do not co-operate in the innovation process, especially on the regional level. Horizontal linkages between firms almost do not exist. Firms perceive other firms mainly as competitors and are afraid of co-operation. They believe co- operation leads to the theft of their ideas and precious workers. If co-operation occurs, it concerns only less risky and costly phases of the innovation process like joint development, joint conferences and exhibitions as well as joint marketing strategy. The Pomeranian firms also have very weak linkages to the public scientific sector. They very rarely co-operate with scientific research institutions or technology transfer institutions. The weak interaction between firms, both among themselves and with those in academia, results in a very low overall and especially business R&D expenditure. The Pomeranian region, similar to the entire country, is mainly a user, not a producer of technology. The majority of the firms’ capital is imported from foreign countries. To sustain the long-run competitiveness of industry it is crucial to enhance the R&D activity of Polish firms, preferably basing this on co-operation with other agents of the innovation system. A policy stimulating interactions in the innovation process could be cheaper than a policy establishing new institutions as co-operation steers resources into a single effort and it has multiple effects. An important source of new knowledge might be the exchange of information and ideas during conferences, exhibitions, co-operation of firms in chambers of commerce, etc. However, the majority of Pomeranian firms belong to different firms’ associations on the domestic level. As co- operation on the regional level might be more effective, regional authorities should induce dialogue between firms and other regional agents. In the Strategy of Development of the Region originating in the year 2000, one of the main priorities is building an effective regional innovation system. However, it is important that all the actions undertaken are based on their usefulness for enterprises, which are the most important agents in the RIS. Keywords: regional innovation systems, enterprises JEL: P Q Z Date: 2005-03-11 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpot:0503003&r=all 825. Do We Need a New Point System in Professional Football Leagues? Ferda Halicioglu (The University of Greenwich, London) This paper analyses the impact of point systems on the degree of competition in professional football leagues via the annual coefficient of variation (CV) of end-of-season points. The past, existing and some alternative point systems were applied to a hypothetical football league consisting of eighteen teams to find out changes in the CV value, which is assumed to measure the degree of football competition statistically. On the basis of the computed CV values, it appears that the most competitive football league takes place statistically in which winner gets three, loser one and draws two points. Keywords: economics of professional team sports, outcome of uncertainty, professional football leagues, degree of competition, coefficient of variation JEL: C40 D40 D81 L83 Date: 2005-03-11 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpot:0503004&r=all 826. Vote Buying Eddie Dekel (Tel-Aviv University) Matthew O. Jackson (Catlech) Asher Wolinsky (Northwestern University) We examine the consequences of vote buying, assuming this practice were allowed and free of stigma. Two parties competing in a binary election may purchase votes in a sequential bidding game via up-front binding payments and/or campaign promises ( platforms) that are contingent upon the outcome of the election. We analyze the role of the parties' budget constraints and voter preferences in determining the winner and the payments to voters. Keywords: vote buying, elections, campaign promises JEL: P16 C72 Date: 2005-03-14 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpot:0503006&r=all 827. The Effect of National Policies and Labor Market on Land Use Decisions in Developing Countries: An Application of Maximum Simulated Likelihood to System of Censored Acreages with Panel Data Bayou Demeke (University of Wisconsin-Madison) Ian Coxhead (University of Wisconsin-Madison) This paper estimates land use responses of households to relative output prices and wages, using panel data from the Philippines. We present multi-output profit maximizing model to elicit the role of relative prices on land allocation between crops and fallowing. We estimate systems of random effects Tobit acreage equations using maximum simulated likelihood technique. The results show that rising return to labor and management intensive crop reduces land expansion. In addition rising wages also reduce agricultural expansion. The results reveal a potential role for market based policies in shaping environmental outcomes in developing countries. Keywords: Land Use, Maximum Simulated Likelihood, Panel Data, Tobit, Philippines JEL: P Q Z Date: 2005-03-14 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpot:0503007&r=all 828. Organic Apple Production in Washington State: An Input- Output Analysis Pon Nya Mon (Washington State University) David W. Holland (Washington State University) This paper provides an Input-Output (I/O) based economic impact analysis for organic apple production in Washington State. The intent is to compare the economic “ripple” effect of organic production with conventional production. The analysis is presented in two scenarios: first we compare the economic impact of organic versus conventional apple production for a l demand increase of one million US$ as measured in sales. The second analysis looks at the economic impact of organic and conventional apple production in terms of given unit of land (405 hectares of production). Both state-wide output (sales) and employment (jobs) impacts are estimated under each scenario. Results are presented in terms of direct, indirect, and induced economic impact. Organic apple production was more labor intensive than conventional production. While, the organic apple sector used less intermediate inputs per unit of output than conventional production it also produced higher returns to labor and capital. As a result, the indirect economic effect was lower for the organic sector than the conventional sector, but the induced economic effect was higher for organic. Given the organic price premium, the economic impact (direct, indirect and induced) was larger for organic apple production than conventional apple production. Keywords: conventional and organic apple production, multiplier effects, output, and employment effects, IMPLAN JEL: D58 R11 Date: 2005-03-22 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpot:0503009&r=all 829. Spiritual-Science Research Magazine Maheshjani (G.H.Jani.charitable trust,kampteelane, Rajnandgaon- 491441 C.G. India) Billions of dollars are invested by all the nations and public to construct spritual centers, but it is not clarified by scitifically and experiences that actually , there is any truth on spiritual sciences or it is waste of money , if readers will take interest , i will send more and more parts of spiritual science Research magazine. Keywords: International Unity through spritual science for Economic developments JEL: P Q Z Date: 2005-03-23 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpot:0503010&r=all 830. BIOECONOMICS OF SUSTAINABLE HARVEST OF COMPETING SPECIES: A COMMENT Tibor Neugebauer (University Hannover) Flaaten’s (1991) study on competing species conjectures that a higher price (harvesting costs) of one species yields a lower ( greater) own stock-size and a greater (lower) stock-size of the competing species. I show both conjectures are wrong. Keywords: fishery management, multiple species model, renewable resources JEL: Q22 Date: 2005-03-25 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpot:0503012&r=all 831. The Social Norm of Tipping: Does it Improve Social Welfare? Ofer H. Azar (Ben-Gurion University of the Negev) Some economists believe that social norms are created to improve welfare where the market fails. I show that tipping is such a norm, using a model in which a waiter chooses service quality and then a customer chooses the tip. The customer’s utility depends on the social norm about tipping and feelings such as embarrassment and fairness. The equilibrium depends on the exact social norm: higher sensitivity of tips to service quality ( according to the norm) yields higher service quality and social welfare. Surprisingly, high tips for low quality may also increase service quality and social welfare. Keywords: Tipping, Social norms, Social welfare, Behavioral economics, Psychology and economics, psychological economics JEL: J30 D11 Date: 2005-03-29 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpot:0503013&r=all 832. Environmental Awareness and Sustainable Development Rahul Shastri (National Akademi of Development) Sustainable development depends upon participation by the people, and their awareness of the environmental effects of their actions. This paper analyses the awareness of the deforesting effect (DFE) of firewood use in the users. It shows that those who bear the costs of deforestation, either by travelling long distances, or by buying all their firewood, are more likely to be aware than others of DFE. Specifically, ceteris paribus, households that buy all their firewood are 3 times as likely to be aware as households that collect at least part of their firewood, ceteris paribus. Likewise, every extra kilometre travelled to collect free firewood increases the odds of awareness by 94%, ceteris paribus. Income, education of the head, and community affiliation show no significant association with awareness. However, those in poorer dwellings are more likely to be aware of the DFE than those in pucca houses, ceteris paribus. Large cultivators are more likely to be aware of DFE, whereas ag. Labour are less likely to be aware than other occupations, controlling for other factors. Significantly, firewood users in less fertile districts appear to be more likely to be aware of the DFE effect than firewood users in more fertile districts. This study also reveals the severe limitations of tools of bivariate analysis (correlations, cross-tabulations, chi- squares) in multivariate situations involving survey data. In some cases bivariate tools fail to detect associations revealed to be significant by logistic analysis, and in other cases, they detect a spurious association by attributing the effects of excluded variables to the included independent variable. The results of the study suggest that reforestation/social forestry efforts should shortlist villages far removed from free firewood, or purchasing their entire stock of firewood. And that education of DFE should have a special focus on agricultural labour, dwellers of pucca houses, and more fertile districts, relative to other groups. Keywords: Fuelwood use, Environmental Awareness, Deforestation JEL: P Q Z Date: 2005-04-04 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpot:0504001&r=all 833. Estimating the Size of Oil Tanker Spills Ayla Ogus (IZmir University of Economics) This paper estimates the determinants of the size of oil tanker spills. In the lit- erature, spill size has been estimated but the results are not very strong. A review of the existing results is provided and the determinants of spill size using a sample selection model are estimated. Estimates from a Tobit regressions are also given to serve as a basis of comparison with the earlier work. One important nding is that groundings and collisions result in larger spills if there is a spill, but the likelihood that there will be a spill due to a grounding or collision is very low. Tanker size is found to have only a marginal e ect on the probability of a spill and a dubious e ect on spill size. US ag tankers and new tankers are found to have a lower probability of causing spills compared to foreign ag and old tankers, respectively. US ag tankers do not have smaller spills when type of cargo variables are included in the analysis. So it is not straightforward to claim that US ag tankers have smaller spills due to stricter regulations. 1 Keywords: size of oil spills, sample selection models JEL: C8 Date: 2005-04-08 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpot:0504003&r=all 834. A Model of Endogeneous Oil Spill Regulation Ayla Ogus (Izmir University of Economics) This paper presents a model of endogenous oil spill regulation where the severity of regulations is shown to be a function of the size of recent spills. The regulator chooses how much to regulate in order to maximize political capital when regulations are rigid downwards and the distribution of spills is not known with certainty. Very large spills are shown to cause large increases in the regulation level. In the event that an unlikely disastrous spill is realized, major regulatory reform may take place which would take the regulations to too high a level. Keywords: general equilibrium, endogeneous JEL: D9 Date: 2005-04-08 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpot:0504004&r=all 835. Semiparametric Estimation of the Size of Oil Tanker Spills Ayla Ogus (Izmir University of Economics) This paper estimates the determinants of the size of oil tanker spills without dis- tributional assumptions on the error terms. We employ semiparametric estimation techniques to estimate the parameters of a sample selection model and compare them to the estimates from a sample selection model with normal errors. We nd that al- though parameter estimates are sensitive to the assumption of normality and to the semiparametric technique used. Major ndings that are qualitatively supported by all methods are: groundings and collisions result in larger spills if there is a spill, but the likelihood that there will be a spill due to a grounding or collision is very low; tanker size has only a marginal e ect on the probability of a spill and a dubious e ect on spill size; US ag tankers and new tankers have a lower probability of causing spills, compared to foreign ag and old tankers, respectively. Keywords: semiparametric methods, sample selection, oil spills JEL: C8 Date: 2005-04-08 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpot:0504005&r=all 836. ECONOMICS OF PRIVATE SCHOOLING INDUSTRY IN KOHIMA, NAGALAND INDIA) SK Mishra (North Eastern Hill University, Shillong, Meghalaya, India) K Rio (North Eastern Hill University, Shillong, Meghalaya, India) The enterprise of running private schools has of late assumed the nature of an industry in India. Ever-increasing population, a race for providing education to ones children, degenerating quality of education in govt.-run schools, unlimited supply of educated youths ready to work at the lowest salary, and the possibilities of earning huge profits for a modest investment together have contributed to the viability of this industry. In Kohima, the capital city of Nagaland (India), there are 31 private high/higher secondary schools against only 3 govt.-run schools. These private schools enroll some 25000 pupils. Enrolment in the govt.- run schools is barely 1600. These private schools employ 766 teachers and pay them an average salary, just 1/3rd of what the govt.-run schools pay. According to the ILO ( 1996) definition of subsistence wages the employees of these schools barely earn a subsistence wage. Nevertheless, these schools generate a revenue of Rs. 88 million of which Rs. 37 million is the net profit. Our analysis shows that private schooling industry in Kohima operates in a monopolistic competition market - bordering on oligopoly. There is price leadership in determining the fees to be charged by the schools making this industry. Keywords: Micro-economics of schools, private schooling industry, India, Kohima, Nagaland, oligopoly, subsistence level salaries JEL: P Q Z Date: 2005-04-14 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpot:0504006&r=all 837. Review of Privade Provided Public Goods Literature Daniel Goulao (Department of Economics, University of Wisconsin- Madison) The intention is to do a summary of the private provision of public goods literature; it also has the goal of seeing that there is no match between the classic theory predictions and the reality and empirical data. Another objective is to find within the literature aspects not studied yet, and so indicate future research topics Keywords: Public Goods JEL: D6 D7 H Date: 2005-01-25 URL: http://d.repec.org/n?u=RePEc:wpa:wuwppe:0501006&r=all 838. Choice of The Optimum Fiscal Rule – The Long Run Perspective Michal Mackiewicz (Institute of Economics, University of Lodz) Paper examines the problem of choice of an optimal fiscal rule in the long run. An ideal rule would typically assure fair distribution of utility over generations, while allowing to maintain the sustainable fiscal position. Three commonly used types: debt, deficit and expenditure rules are considered. The main conclusion is that only the modified deficit rule fulfils the assumptions. The rule requires that government’s policy should aim at keeping the debt-to-GDP ratio constant over the economic cycle. The analysis is extended by taking into account the specific situation of the developing countries. An optimum fiscal constraint is then the Modified Golden Rule, according to which the public assets-to-GDP ratio should be held constant over the cycle. Keywords: fiscal rules, fiscal policy, long run JEL: D6 D7 H Date: 2005-01-26 URL: http://d.repec.org/n?u=RePEc:wpa:wuwppe:0501007&r=all 839. MANAGEMENT & DEVELOPMENT OF HAPPINESS : A PRIORITY IN SOCIO- ECONOMIC DEVELOPMENT Dr.VSR.Subramaniam If bigger objects go into a jar, then there will be space to fill it with smaller objects in sequence. If the order of the objects are reversed, then it ends in filling it at the starting point. Happiness in life is similar to this. Fill high priority needs in the life, and smaller needs can be subsequent, for progressive happiness. Money cannot bring happiness, and it can induct problems as well. GDP, a vague relation builder is used as an index to measure the progress and happiness. Governments and Private corporate sectors in developed nations have attempted to induct happiness to their employees, through earning improvement, lower working hours etc… But, these did not increase happiness. Priority needs change over a period of time, and people compare themselves with others. It is because, the Tangible wealth generation is dribbled by Intangible feelings, to disturb the Happiness. These are Aggregate and Complex. Intangible aspects are Psychological, Social, Local, International and Universal in nature. Author’s Research and Development approach for these vicious combination infers that, all nations, irrespective their level of development, should evaluate Productivity/Management Decisions with reference to Socio-Economic Development units, and Intangible components should have priority over Tangibles ( Algebraic Model). Domestic investments should be from Domestic Savings. Domestic Technology should be manned by Domestic Manpower. These could lead people towards more satisfaction and happiness (Geometric Model) Keywords: Algebraic, Decision, Development, Dollar, Domestic, Economic Scenario, Euro, GDP, Geometric, Government, Happiness, Intangible, International, Investment, Local, Logical Info, Magical Demo, Management, Manpower, Mathematical Expo, Money, Private, Priority, Productivity, Psychological, Public, Savings, Social, Tangible, Technology, Universal JEL: A13 F01 F15 I31 J24 M14 O11 O16 O47 M21 Date: 2005-01-29 Date: 2005-02-07 URL: http://d.repec.org/n?u=RePEc:wpa:wuwppe:0501008&r=all 840. THE ECONOMIC CONSEQUENCES OF PEACE IN THE MIDDLE EAST Edgar L. Feige (University of Wisconsin-Madison) Reference: Challenge, January/February, 1979 Keywords: Middle East, peace, conflict resolution,Egypt, Israel, Camp David, Marshall Plan JEL: H56 C43 C82 C88 O18 D74 D78 F35 Date: 2005-02-03 URL: http://d.repec.org/n?u=RePEc:wpa:wuwppe:0502001&r=all 841. Wage and Income Inequality in Slovenia, 1993-2002 Tine Stanovnik (University of Ljubljana & Institute for Economic Research Ljubljana) Miroslav Verbic (Institute for Economic Research Ljubljana) This paper analyses the dynamics of wage and income inequality in Slovenia from 1993 to 2002, using two different data sources. The first is obtained by extracting relevant information on wage earners from the personal income tax (PIT) database and the second is obtained using published data on wages and the wage distribution. Analyses of both datasets clearly show a large increase in wage inequality in the period 1993-1995. However, even after 1995 wage inequality has been creeping up. To a large degree, we ascribe the major increase in wage inequality to the rapid development of a full-fledged market economy and also to the changing PIT legislation. A growing individualization of wage contracts doubtlessly also contributed to increased inequality. In addition, our analysis touches upon the effects of the tax system and shows that the tax system significantly moderated the large increases in income inequality. Keywords: income distributions, income inequality, Slovenia, transition, wages, wage contracts JEL: D33 H24 P20 Date: 2005-02-07 URL: http://d.repec.org/n?u=RePEc:wpa:wuwppe:0502002&r=all 842. Reputation Effects in Gold Glove Award Voting Arthur Zillante (ICES, George Mason University) Reputation effects have been thought to influence how candidates in an election are viewed by the electorate. Using data from Major League Baseball, I attempt to quantify the effect that reputation plays in voting for the Gold Glove award. While the award is designed to reflect current-year defensive accomplishments, two other hypotheses have been suggested to explain voting behavior. The first is that voters use current- year offensive accomplishments in lieu of defensive accomplishments. The second hypothesis is that voters rely on the past performance of the players when casting their ballots, implying that reputation effects exist in the minds of voters. Results from probit estimation show that while reputation effects appear to have a significant effect on the outcome of the election, current-year offensive accomplishments do not. Keywords: Voting behavior, baseball JEL: D72 Date: 2005-02-08 URL: http://d.repec.org/n?u=RePEc:wpa:wuwppe:0502003&r=all 843. The Economics of Scientific Research Coalitions: Collaborative Network Formation in the Presence of Multiple Funding Agencies Paul A. David (Stanford University) Louise C. Keely (University of Wisconsin) The paper develops a formal model of coalition-building ( “network” formation) among research units that seek competitive funding from a supra-regional program, while also drawing support from their respective regional funding agencies. This approach enables one to ask whether there are stable ( equilibrium) outcomes in the interactions among the several funding entities, and to investigate what those outcomes would imply for the evolving distribution of scientific performance within the entire region and its national sub-regions. This analysis is motivated by the absence of frameworks of analysis applicable to problems of design of public R&D funding arrangements in the European Union, and in other regional systems were independent programs of “federal and state” support for research co-exists First, a model is developed to analyze how collaborations are formed under different sets of funding rules of an international funding institution, starting with a fixed finite population of research units and an associated distribution of reputed quality, or scientific reputation.. Collaborations are formed in the expectation of attracting supra- national funding, following a specific ordering procedure; this gives rise to a repeated non-cooperative game of coalition (or collaboration) formation with the distribution of payoffs within the collaboration following to a fixed rule. Non- cooperative games of coalition formation developed by Bloch (1995), and Ray and Vohra (1999), provides a useful framework single-period framework. Following Keely (1999), this type of game is applied to a multi-period setting in which a distribution of coalitions is tracked, along with the levels of funding received. The latter are determined according to a rule comparing the distribution of reputations within and across collaborations. Alternative possible external funding rules are analyzed to determine how they impact upon collaboration formation, and the resulting evolution of the reputation distribution (as that will be affected by the allocation of funding). In the second part of the analysis, various combinations of national and supra-national funding regimes are examined, but all the rules considered stipulate that collaborations are funded as a whole, regardless of the number of members; and that their funding is determined by the absolute level of average reputation, or of the variance in reputation, rather than just the rankings of the proposed networks. The Nash equilibria associated with each of the stipulated funding regimes can be compared, and to characterize the outcomes, the paper examines these two moments of the endogenously determined distributions research “competence” ( signaled by the reputation measures) within the entire ensemble of research units and its national partitions. A numerical simulation helps illustrate the nature of the conclusions for policy design that can be drawn from this style of analysis. JEL: D6 D7 H Date: 2005-02-10 URL: http://d.repec.org/n?u=RePEc:wpa:wuwppe:0502004&r=all 844. Analisis economico de la actitud hacia el fraude fiscal en Espana Juan Prieto-Rodriguez (Universidad de Oviedo) Maria Jose Sanzo-Perez (Universidad de Oviedo) Javier Suarez-Pandiello (Universidad de Oviedo) This paper is inscribed in the literature on fiscal fraud and moral of taxpayers. We analyse the attitude of the Spaniards respect to two kinds of fraud: the hiding of income to pay less taxes and the hiding of information to benefit fraudulently from goods and services that otherwise one would not have the right to enjoy. Besides, we examine the determining factors on these variables by estimating ordered probit models. According to the postulates of Public Choice Theory we have included in the analysis political orientation variables. These factors have verified the significant effects of the politics, confirming its importance on the individual’s fiscal moral. Keywords: ordered probit model, tax evasion, tax morale JEL: H26 H31 Date: 2005-02-13 URL: http://d.repec.org/n?u=RePEc:wpa:wuwppe:0502005&r=all 845. Generic Difference of Expected Vote Share and Probability of Victory Maximization in Simple Plurality Elections with Probabilistic Voters John W. Patty (Carnegie Mellon University) In this paper I examine single member, simple plurality elections with n > 2 probabilistic voters and show that the maximization of expected vote share and maximization of probability of victory are “generically different” in a specific sense. More specifically, I first describe finite shyness (Anderson and Zame (2000)), a notion of genericity for infinite dimensional spaces. Using this notion, I show that, for any policy x in the interior of the policy space and any candidate j, the set of n-dimensional profiles of twice continuously differentiable probabilistic voting functions for which x simultaneously satisfies the first and second order conditions for maximization of j’s probability of victory and j’s expected vote share at x is finitely shy with respect to the set of n-dimensional profiles of twice continuously differentiable probabilistic voting functions for which x satisfies the first and second order conditions for maximization of j’s expected vote share. Keywords: Equivalence, Genericity, Candidate objectives, Probabilistic voting JEL: D6 D7 H Date: 2005-02-16 URL: http://d.repec.org/n?u=RePEc:wpa:wuwppe:0502006&r=all 846. Loss Aversion, Presidential Responsibility, and Midterm Congressional Elections John W. Patty (Carnegie Mellon University) I explore a behavioral model of political participation, first introduced by Quattrone and Tversky [1988], based on the primitives of prospect theory, as defined by Kahneman and Tversky [1979]. The model offers an alternative explanation for why the President’s party tends to lose seats in midterm congressional elections. The model is examined empirically and compared against competing explanations for the “midterm phenomenon”. Keywords: Loss aversion, midterm elections, congressional elections, negative voting, midterm effect JEL: D6 D7 H Date: 2005-02-16 URL: http://d.repec.org/n?u=RePEc:wpa:wuwppe:0502007&r=all 847. Slackers and Zealots: Civil Service, Policy Discretion, and Bureaucratic Capacity Sean Gailmard (Northwestern University) John W. Patty (Carnegie Mellon University) In this paper we investigate how “civil service” personnel management interacts with bureaucratic discretion to create high capacity, expert bureaucracies populated by policy-motivated agents. We build a model in which bureaucrats may invest in ( relationship specific) policy expertise, and may be either policy- motivated or policy-indifferent. We show that under specific conditions on the nature of expertise and bureaucratic discretion over policy choices, merit system protections for job tenure encourage the development of expertise and problem solving capacity in the bureaucracy. In addition, we identify conditions under which typical civil service rules encourage policy- motivated bureaucrats to enter and remain in public service, and policy- indifferent bureaucrats to leave it. Keywords: Bureaucracy, Expertise, Discretion, Civil Service JEL: D72 D73 C70 Date: 2005-02-16 URL: http://d.repec.org/n?u=RePEc:wpa:wuwppe:0502008&r=all 848. Whose Ear (or Arm) to Bend? Information Sources and Venue Choice in Policy Making Frederick J. Boehmke (University of Iowa) Sean Gailmard (Northwestern University) John W. Patty (Carnegie Mellon University) Important conceptualizations of both interest groups and bureaucratic agencies suggest that these institutions provide legislatures with greater information for use in policy making. Yet little is known about how these information sources interact in the policy process as a whole. In this paper we consider this issue analytically, and develop a model of policy making in which multiple sources of information – from the bureaucracy, an interest group, or a legislature’s own in-house development – can be brought to bear on policy. Lobbyists begin this process by selecting a venue – Congress or a standing bureaucracy – in which to press for a policy change. The main findings of the paper are that self-selection of lobbyists into different policy making venues can be informative per se; that this self-selection can make legislatures willing to delegate more authority to ideologically distinct bureaucratic agents; and that delegation of authority, while it takes advantage of agency expertise, can nevertheless lead to an increase in the legislature’s own in- house information gathering (e.g., hearings). Changes within the Federal Trade Commission during the 1970s are reinterpreted in the context of our model. Keywords: Delegation, Lobbying, Bureaucracy, Venue Choice, Discretion JEL: D72 D73 C70 Date: 2005-02-16 URL: http://d.repec.org/n?u=RePEc:wpa:wuwppe:0502009&r=all 849. A PUSH TO GEORGE ( IN ) BUSH DR.VSR.SUBRAMANIAM An imperative need has arisen to provide a Constructive push to the President Bush. American population, Corporate units, Expatriates and all nations with their currency related to US $, are not happy in the current $ dipping situation. Even the currencies of poor nations are galloping upward in $ parity, because they are linked to Euro. This is due to USA's approach to control other nations in the world,through unilateral Army power, tie up of domestic markets towards USA, and Pumping wealth from developed nations. A Notional Balance sheet of USA, balances only with a Loss to the Assets(Debit). This off-setting entry is a miscellaneous loss expense entry,in the Profit making US Income Statement. As a Prime Developed Nation USA alone can perform the role of fighting threat to the world, lead the poor nations toward a free and democratic society, as announced by President Bush. Bush is correct. But only the current methodology and approach require a revised outlook. An Algebraic Model of the author infers that Productivity of the assisted nations should be with reference to their internal Socio-Economic development target units, Pumping money and strengthening the defense of the assisted nation only increase their everlasting liability. Strengthen their Intangible moral values hand in hand with the Wealth formation. A Geometric Bi-circular Model of the author leads to the direction that an Endogenous methodology is to introduce the latest technology (moderated to the local conditions) for domestic Techno- Commercial upgrade; and train the domestic Manpower of the assisted nation to utilise them. An Exogenous tool is to start the basic infrastructure building from assisted resources (USA, Other nations,UN,WB,IMF etc..). But soon work to develop Domestic savings to Domestic investment for Self- Confidence/Reliance. These will lead USA towards a more Prosperous/Practical Inter national leader to protect the World in the current and future millenniums. Keywords: Algebraic,Balance sheet,Bi- cirrcular,Bush,Commercial, Currency,Developed,Developing, Development,Dollar, Economic,Endogenous,Euro,Exogenous, Financial,France, GDP,Geometric,Germany,Growth,India,Intangible,Investmen t,ItalyJapan, Loss,Manpower,Model,Pakistan,Per capita, Productivity,Profit,Rupee,Sanction,Saving,SriLanka, Social,Socioeconomic,Tangible,Technical,UK,UN,USA,Wage earner,War,Yen JEL: A13 A14 B22 B41 D63 D78 F02 F34 F42 G18 H11 I31 O38 O47 Date: 2005-02-18 Date: 2005-02-19 Date: 2005-03-03 URL: http://d.repec.org/n?u=RePEc:wpa:wuwppe:0502010&r=all 850. How do Institutions Affect Corruption and the Shadow Economy? Axel Dreher (Konstanz University) Christos Kotsogiannis (Exeter University) Steve McCorriston (Exeter University) This paper analyzes a simple model that captures the relationship between institutional quality, the shadow economy and corruption. It shows that an improvement in institutional quality reduces the shadow economy and affects the corruption market. The exact relationship between corruption and institutional quality is, however, ambiguous and depends on the relative effectiveness of the institutional quality in the shadow and corruption markets. The predictions of the model are empirically tested - by means of Structural Equation Modelling that treats the shadow economy and the corruption market as latent variables - using data from OECD countries. The results show that an improvement in institutional quality reduces the shadow economy directly and corruption both directly and indirectly (through its effect on the shadow market). Keywords: Corruption, Shadow Economies, OECD countries, Latent Variables, Structural Equation Modelling JEL: H10 O1 K49 C39 Date: 2005-02-22 Date: 2005-02-24 Date: 2005-02-24 URL: http://d.repec.org/n?u=RePEc:wpa:wuwppe:0502012&r=all 851. Bureaucratic Corruption and Mass Media Suphachol Suphachalasai (University of Cambridge) This paper investigates the relationship between a bureaucracy and mass media industry, and its implications to corruption. We develop a bureaucratic model of corruption with mass media. A representative profit maximizing media firm seeks for corruption news to be printed and sold. Channels through which competition in media industry and press freedom affect equilibrium corruption in a bureaucracy are modeled. Different degrees of media freedom and competition affect production and employment decisions of media firms, and this in turn affects the effectiveness of media in monitoring corruption. Competition and freedom in media sector also have an influence on bureaucratic structure and consequently on equilibrium corruption. We find that the degree of competition in media market plays a significant role in controlling corruption. Freedom of media also reduces corruption. Empirical results support these findings. Media competition appears to be a more important tool to combat corruption than press freedom. The corruption problem in Italy could be reduced to the level experienced by France if the competitiveness of its media industry was to be improved to the same level as that of United Kingdom. Keywords: Corrupton; Bureaucracy; Mass Media JEL: D73 D8 H11 Date: 2005-02-24 URL: http://d.repec.org/n?u=RePEc:wpa:wuwppe:0502014&r=all 852. Measures of Waste Due to Quotas Lilyan E. Fulginiti Richard K. Perrin This paper addresses the issue of measuring waste due to the imposition of a production quota. our objective is to elaborate two alternative general equilibrium concepts of the welfare loss due to the imposition of a production quota, and to illustrate their use by considering costs of the U.S. tobacco program. Keywords: Welafare loss, general equilibrium, Debreu, Allais, Hicks, production quota, tobacco JEL: Q Date: 2005-02-28 URL: http://d.repec.org/n?u=RePEc:wpa:wuwppe:0502016&r=all 853. An Allais Measure of Production Sector Waste Due to Quotas Lilyan E. Fulginiti (University of Nebraska) Richard K. Perrin (University of Nebraska) In this paper we adapt a partial equilibrium approach of Allais and Diewert to measure the efficiency loss in the producing sector due to quotas. The measure of waste is the additional profits available due to reallocation subject to constraints that the welfare of persons and firms outside the sector is unaffected. An example is presented using the tobacco quota program in the U. S. Keywords: deadweight loss, production sector, quotas, waste, Allais JEL: Q Date: 2005-02-28 URL: http://d.repec.org/n?u=RePEc:wpa:wuwppe:0502017&r=all 854. Productivity Measures in the Presence of 'Poorly Priced' Goods Richard K. Perrin (University of Nebraska) Lilyan E. Fulginiti (Iowa State University) The objective of this paper is to present Hickssian general equilibrium approaches to productivity measurement in the presence of market failure. Keywords: welfare measure of productivity, general equilibrium, deadweight loss, Hicks, market failure JEL: Q Date: 2005-02-28 URL: http://d.repec.org/n?u=RePEc:wpa:wuwppe:0502018&r=all 855. Intervention and Production Sector Waste in LDC Agriculture Lilyan E. Fulginiti (University of Nebraska) Richard K. Perrin (University of Nebraska) This study uses the quantity-based Allais-Debreu measure of loss to measure the waste, in output or resources, induced by interventions in the agricultural sector in 18 developing countries. Keywords: Allais-Debreu, deadweight loss, LDC's, agricultural taxation JEL: Q Date: 2005-03-02 URL: http://d.repec.org/n?u=RePEc:wpa:wuwppe:0503001&r=all 856. Towards the Development of a Definitive Infrastructure Policy in Deepak Kumar (ICFAI Business School) P Nair (ICFAI Business School) The Government of AP needs to rethink its Infrastructure strategy in the light of current state priority. Unless these are in line with state priorities, the strategies will not work and will perpetually be at cross purposes. The current direction taken by the state appears to point towards the development of rural infrastructure, such as irrigation facility and linkages. The paper attempts to assess the need for these linkages and evolve broad policies to be implemented by these strategies. Keywords: Infrastructure , Policy JEL: D6 D7 H Date: 2005-03-03 URL: http://d.repec.org/n?u=RePEc:wpa:wuwppe:0503002&r=all 857. A Note on Wealth as a Corruption-Controlling Device Rafael Di Tella (Harvard Business School) Federico Weinschelbaum (Universidad de San Andres) In the standard moral hazard model, withholding of effort by the agent is not observable to the principal. We argue that this assumption has to be changed in applications that study corruption. The overwhelming majority of cases where corrupt politicians have been punished involve the detection of consumption levels that appear to be too high. The informativeness of an agent’s level of consumption depends on his initial level of wealth as conspicuous consumption of luxuries by wealthy agents leads to little updating of the principal’s belief about their honesty. This introduces a tendency to choose poor agents as they are easier to monitor. More generally, we show that, even if agents have similar preferences, there are contractual advantages to selecting particular types. We describe the basic problem of choosing agents and monitoring consumption, and discuss a number of features of the practical applications. We show that selecting rich politicians may not help fight corruption and that the political class will exhibit lower variance in consumption than the population. In settings were formal contracts matter, we show that monitoring consumption introduces a tendency towards low powered incentive schemes (and more generally low wages) and that the measure of “moral” costs that is often employed in the literature can be derived (not assumed). Keywords: Choosing agents, monitoring consumption, low wages, moral costs JEL: K42 D82 L52 Date: 2005-03-08 URL: http://d.repec.org/n?u=RePEc:wpa:wuwppe:0503003&r=all 858. Informationally Efficient Trade Barriers Andrea Moro (University of Minnesota) Matthew F. Mitchell (University of Iowa) Why are trade barriers often used to protect home producers, even at the cost of introducing deadweight losses from higher commodity prices? We add an informational friction to the standard textbook argument in favor of free trade, and show that trade restrictions may be a more effcient policy than a lump sum transfer to the displaced producers. Trade barriers, while generating deadweight losses, have the benefit that they do not generate a need for compensation. When the policy maker does not know the amount that should be transferred, the risk of over- compensating may make trade barrier more efficient. Keywords: Trade barriers, Distortionary policies JEL: D6 D7 H Date: 2005-03-10 URL: http://d.repec.org/n?u=RePEc:wpa:wuwppe:0503004&r=all 859. GENDER AND PUBLIC SPENDING ON EDUCATION IN PAKISTAN: A CASE STUDY OF DISAGGREGATED BENEFIT INCIDENCE Muhammad Sabir (Social Policy & Development Centre) To what extent has government education spending in Pakistan been effective in reducing gender gaps in enrollments? To answer this question, this article reviews the benefit incidence of government education spending. It finds that government subsidies directed towards primary education are pro poor in all four provinces of Pakistan. Moreover, females has disadvantage in access to primary education. However, government subsidies directed towards higher education poorly targeted and poorest income group receives less than the riches income group and indeed favor those who are better off. Similarly, the gender disparity in access to public subsidy is higher at tertiary level and lowest at primary level, which also reflects poor targeting. Improving targeting to the poor as well as better female participation involves not simply rearranging the public subsidies, but also addressing the constraints that prevent the poor and females from accessing these services. Keywords: Gender, Public Expenditure on Education, Benefit Incidence JEL: D6 D7 H Date: 2005-03-11 URL: http://d.repec.org/n?u=RePEc:wpa:wuwppe:0503005&r=all 860. Shortlisting Paola Manzini (Queen Mary, University of London & IZA) Marco Mariotti (Queen Mary, University of London) We study the properties of decisions made by committees who select alternatives by constructing shortlists. We find that even when committees are themselves rational, such procedures may not give rise to rational choices. A necessary condition for this to occur is disagreement between committees. However, we delimit substantially the extent of `irrationality' that these procedures allow. Keywords: Committees, shortlist, menu-dependence, cycles of choice JEL: D71 Date: 2005-03-15 URL: http://d.repec.org/n?u=RePEc:wpa:wuwppe:0503006&r=all 861. EFFICIENCY OF INSTITUTIONS, POLITICAL STABILITY AND INCOME DYNAMICS Fabrizio Carmignani (United Nations Economic Commission for Europe) In a simple theoretical framework, the quality of institutions affects individual’s investment decisions, and hence income levels and distribution. When institutions deteriorates and inequalities increase, the incumbent undertakes redistributive taxation to maintain political support. The quality of institutions and the extent of redistribution depend on the degree of government responsiveness to citizens and on the credibility of the political opposition to the incumbent. The econometric analysis is based on both single equation models and systems of equations. Good institutions are found to reduce the Gini coefficient and to increase average income, growth, and income of the poor. However, some non-linearites are detected in the institutions-Gini relationship. Keywords: Institutions, income distribution, poverty, per-capita income, growth JEL: D3 D7 O4 I3 Date: 2005-03-22 URL: http://d.repec.org/n?u=RePEc:wpa:wuwppe:0503007&r=all 862. Disarming Fears of Diversity: Ethnic Heterogeneity and State Militarization, 1988–2002 Indra de Soysa (Norwegian University of Science & Technology NTNU) Eric Neumayer (London School of Economics & Political Science LSE) This study addresses state militarization under conditions of ethnic and other diversity. Recent scholarship in economics finds that high diversity leads to lower provision of public goods. At the same time, conflict studies find that highly diverse societies face a lower risk of civil war despite the ‘primordialist’ claims about ancient hatreds, fear, and insecurity in such societies. Investigating possible links between these two separate lines of research, we explore whether diversity prompts governments to militarize heavily in order to prevent armed conflict, which would then crowd out spending on other public goods. Using military expenditures, personnel and arms imports as indicators of militarization, we find that higher levels of ethnic (and possibly linguistic) diversity predict lower levels of militarization, whereas religious diversity does not matter. If high diversity lowers the hazard of civil war, then it does not happen via a ‘garrison state’ effect. If diverse societies spend less on public goods, then this is not because they are crowded out by costly militarization. JEL: D6 D7 H Date: 2005-03-23 URL: http://d.repec.org/n?u=RePEc:wpa:wuwppe:0503008&r=all 863. Why Do Voters Demand Universal Government Benefits? Filip Palda (Ecole nationale d'administration publique) Universal social benefits seem to contradict important notions in economics. They are poorly targeted and must be paid for by what seem to be high taxes. This paper describes the costs of universality and then proposes two competing explanations for why an electorate might wish to pay these costs. It may be harder to identify the poor through targeted social programs than to simply give everyone social benefits and withdraw part of these benefits through the tax system. Or, universality may be a form of political insurance that protects any one group of voters from being exploited by others. Each conjecture leads to different predictions about the manner in which government benefits will vary with the incomes of the recipients. I use a model of tax and spending incidence for Canada in 1990 to see which conjecture helps best to understand the data. I find mixed evidence in favor of the notion that universality is a form of political insurance. Keywords: fiscal churning, political efficiency, transfers, Canada JEL: D6 D7 H Date: 2005-03-30 URL: http://d.repec.org/n?u=RePEc:wpa:wuwppe:0503009&r=all 864. PROPERTY CONSCIOUSNESS AND THE DIFFERENCE BETWEEN WTP AND WTA Rahul Shastri (National Akademi of Development) It is well known in Environmental Economics that payment offered on the Willingness to Pay (WTP) principle is much smaller than the compensation demanded on the Willingness to Accept (WTA) principle. Payment under WTP goes into the environment and is communally enjoyed, whereas compensation under WTA goes into one’s bank account. Public goods/benefits are valued less than private goods/benefits, due to technical reasons, as well as ‘pure property consciousness’. This explains why WTP is much less than WTA. It is suggested here that the ratio of WTP to WTA can be taken as an index of socialisation of property consciousness. A value of zero would indicate complete individualism, while a value of 1 would indicate an indifference between public and private forms of enjoyment of environmental benefits. It is interesting to note that this ratio is generally less than ?, (95% confidence interval: 0.8 ? q ? 0.38). The measure has a wide range of application. It can be derived from the difference in valuation of any quasi public good that can also be privately supplied and enjoyed. And its measurement may throw light on the failures and successes of co- operative/public/collective property based experiments. Keywords: Willingness to Pay, Willingness to Accept, Property consciousness, Socialisation JEL: A Q Date: 2005-04-04 URL: http://d.repec.org/n?u=RePEc:wpa:wuwppe:0504001&r=all 865. The possibility of judgment aggregation for network agendas Franz Dietrich (University of Konstanz, Germany) Within social choice theory, the new field of judgment aggregation aims at reaching collective judgments on a set of logically interconnected propositions. I investigate decision problems, in which the agenda is a network, composed of atomic propositions and connection rules between them. Networks can represent various realistic decision problems, including most concrete examples given in the literature. Nevertheless, networks are unexplored so far due to problems when modelling connection rules in standard propositional logic. By extending the logic, I prove that, for any network, decision rules satisfying the common conditions always exist, in contrast to the literature's emphasis on impossibilities. I also characterise the class of such decision rules, and propose a simple way to select a decision rule. Keywords: judgment aggregation, collective inconsistency, possibility theorems, network, connection rule, formal logic, material conditional, subjunctive conditional JEL: D70 D71 D79 Date: 2005-04-05 URL: http://d.repec.org/n?u=RePEc:wpa:wuwppe:0504002&r=all 866. Parallel proofs of Arrow’s and the Gibbard-Satterthwaite theorem Antonio Quesada (Universitat Rovira i Virgili, Spain) Arrow’s and the Gibbard-Satterthwaite theorems are proved using a common proof strategy based on a dictatorship result for choice functions. One of the instrumental results obtained shows the inconsistency between the basic assumption in each of these theorems and a mild majority principle. Keywords: Arrow’s theorem; Gibbard-Satterthwaite theorem; Choice function; Majority. JEL: D71 Date: 2005-04-11 URL: http://d.repec.org/n?u=RePEc:wpa:wuwppe:0504003&r=all 867. CLAVES DE LA INFLACION DE 2005 Federico Marongiu (CIPPEC) El tema de la inflacion ha sido uno de los mas debatidos en los ultimos meses. Los incrementos de precios registrados en el primer trimestre de 2005 han avivado la discusion. Este trabajo muestra que el problema esta lejos de estar fuera de control y que determinadas medidas de politica fiscal y monetaria pueden dar una solucion en el corto plazo. Tres razones se mencionan como causa del aumento de precios: efectos derivados de la devaluacion de la moneda domestica; “cuellos de botella” en la produccion, que tiene dificultades para afrontar el aumento de la demanda e incrementos en el circulante a traves de las intervenciones del Banco Central en el mercado cambiario. La inflacion impacta al mismo tiempo en diversas dimensiones de la economia argentina, entre ellas la politica fiscal, la deuda publica, las finanzas provinciales, la pobreza y la indigencia y la distribucion del ingreso. Por el lado de las cuentas publicas, el incremento en precios tiene un efecto positivo en los ingresos tributarios, aumentando la recaudacion de impuestos como el IVA. Esto fue evidente en anos de alta inflacion como 2002. Si los gastos se mantienen constantes o suben en una proporcion menor, se obtiene una mejora en el resultado fiscal. Relacionado con el punto anterior se encuentra el tema de la deuda publica, ya que parte de la deuda emitida desde 2002 se encuentra ajustada por el Coeficiente de Estabilizacion de Referencia (CER), intrinsicamente relacionado con el Indice de Precios al Consumidor. Un incremento en los precios se traduce en un aumento del monto de los pagos que deberan hacerse. Un efecto similar al de las finanzas del sector publico nacional ocurre en las provincias. Estas ven, por un lado, incrementados sus recursos a traves del efecto del aumento de precios en impuestos como Ingresos Brutos y, al mismo tiempo, perciben mas fondos a traves del regimen de Coparticipacion Federal de Impuestos. Asimismo pueden existir incrementos en algunos rubros del gasto y presiones al alza en otros. El aumento de precios tiene un efecto directo en la pobreza y en la distribucion del ingreso, incrementando los precios de los productos de la Canasta Basica Alimentaria, que son los que impactan mas directamente en los sectores de mas bajos recursos. Existen medidas que pueden ayudar a solucionar el problema de la escalada de precios, tales como estimular la inversion para solucionar los “cuellos de botella” productivos, bajar precios en sectores claves a traves de reduccion en impuestos, mantener en el corto plazo las retenciones a las exportaciones y evitar la intervencion desmedida en el mercado cambiario. Keywords: Inflation, prices, public finance, monetary policy, fiscal policy, Argentina JEL: D6 D7 H Date: 2005-04-13 URL: http://d.repec.org/n?u=RePEc:wpa:wuwppe:0504004&r=all 868. The Value of Commitment in Contests and Tournaments when Observation is Costly Felix Vardy (International Monetary Fund) John Morgan (Haas School of Business & Department of Economics, UC Berkeley) We study the value of commitment in contests and tournaments when there are costs for the follower to observe the leader's behavior. In a contest, the follower can pay to observe the leader's effort but cannot observe the effectiveness of that effort. In a tournament, the follower can pay to observe the effectiveness of the leader's effort but not the effort itself. We show that this distinction matters significantly: When observation is costly, the value of commitment vanishes entirely in sequential and endogenous move contests, regardless of the size of the observation cost. By contrast, in tournaments, the value of commitment is preserved completely, provided that the observation costs are sufficiently small. Keywords: Contests, Tournaments, Rent-Seeking, Commitment, Costly Leader Games JEL: H10 Date: 2005-04-14 URL: http://d.repec.org/n?u=RePEc:wpa:wuwppe:0504005&r=all 869. Modeling the risk process in the XploRe computing environment Krzysztof Burnecki (Hugo Steinhaus Center) Rafal Weron (Hugo Steinhaus Center) A user friendly approach to modeling the risk process is presented. It utilizes the insurance library of the XploRe computing environment which is accompanied by on-line, hyperlinked and freely downloadable from the web manuals and e- books. The empirical analysis for Danish ?re losses for the years 1980-90 is conducted and the best fitting of the risk process to the data is illustrated. Keywords: Risk process, Monte Carlo simulation, XploRe computing environment JEL: G22 Date: 2005-02-07 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpri:0502001&r=all 870. konsentrasi spasial industri manufaktur: tinjauan empiris di kota surabaya erlangga agustino landiyanto (faculty of economics, airlangga university indonesia) Konsentrasi dari aktivitas ekonomi secara spasial, terutama pada industri manufaktur, telah menjadi fenomena menarik untuk dianalisis. Pada industri manufaktur, konsentrasi spasial ditentukan oleh biaya upah, biaya transportasi dan akses pasar serta ekstenalitas dari konsentrasi spasial yang berkaitan dengan penghematan lokalisasi dan penghematan urbanisasi. Penelitian ini bertujuan untuk mengetahui dimana dan pada subsektor apa industri manufaktur kota Surabaya Terkonsentrasi serta untuk mengetahui mengapa dan bagaimana industri manufaktur kota Surabaya terkonsentrasi sehingga dapat dianalisis mengenai kebijakan dalam mengembangkan industri manufaktur kota Surabaya. Data yang digunakan pada penelitian ini adalah data tenaga kerja industri manufaktur dua digit per kecamatan di Surabaya tahun 1994 dan 2002. Data tersebut dianalisis dengan menggunakan LQ, Ellison Glaeser indeks dan Maurel Sedillot indeks. Berdasarkan analisis, diketahui bahwa Industri manufaktur di kota Surabaya terkonsentrasi di kecamatan Rungkut, Tandes dan Sawahan sedangkan subsektor unggulan Kota Surabaya adalah industri makanan, minuman dan tembakau serta industri logam, mesin dan peralatan. Keywords: Konsentrasi spasial, eksternalitas, kluster, agglomerasi, Surabaya JEL: R Date: 2005-01-24 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpur:0501006&r=all 871. Does the Concept of “Community of Practice” Show New Trajectories for the Evolution of Industrial Districts? Silvia Rita Sedita The aim of this paper is to find a framework that could be useful to evaluate the utility of the concept of “Community of Practice” (CoP) for understanding the dynamics of knowledge creation and sharing in Industrial Districts (IDs). The CoP concept stems from the managerial experience of large corporations, which have found in it a kind of “living repository” of knowledge. The source of the concept of agglomeration of firms in ID is completely different. Anyway, many similarities can be found between the concepts of ID and CoP, as well then some differences. The paper proceeds as follows. First, it explains the three main concepts useful for understanding further argumentations: knowledge, ID, CoP. Next, it offers a framework to put in comparison the two concepts of ID and CoP. In the end, an example of how the applications of tools, coming from the CoP concept, can be useful to formulate some hypotheses on the evolutionary behaviour of IDs is shown. Keywords: Community of Practice, Industrial District, Knowledge, Learning JEL: D83 R12 Date: 2005-02-02 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpur:0502001&r=all 872. Kinerja Keuangan dan Strategi Pembangunan Kota di Era Otonomi erlangga agustino landiyanto (faculty of economics, airlangga university indonesia) Dengan munculnya UU No. 22 tahun 1999 yang mengatur pelimpahan wewenang dan tanggung jawab dari pemerintah pusat kepada pemerintah daerah serta UU No. 25 tahun 1999 yang mengatur perimbangan keuangan antara pusat dan daerah, selayaknya kota Surabaya mengembangkan sumber daya lokal dan mengurangi ketergantungan dari pusat. Akan tetapi, berbagai pengamatan empiris menyatakan bahwa pemberlakuan otonomi daerah menimbulkan distorsi dan high cost ekonomi. oleh karena itu, makalah ini menganalisis kinerja keuangan kota Surabaya dan merumuskan strategi kebijakan dalam meningkatkan kinerja keuangan pemerintah kota Surabaya agar tercapai pembangunan berkelanjutan yang berdasarkan partisipasi aktif dan sesuai dengan kebutuhan dari masyarakat kota Surabaya. Keywords: Desentralisasi, Otonomi, Kemandirian, Kota Surabaya JEL: D6 D7 H R Date: 2005-02-07 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpur:0502002&r=all 873. Crop Diversification in Orissa: A Spatio-Temporal Analysis Manoranjan Pattanayak (Jawaharlal Nehu University) Bibhu Prasad Nayak (Jawaharlal Nehu University) The objective of this paper is to analyze the crop diversification and crop concentration in Orissa in the last one and half decade. It is pursued through measuring crop diversification and crop concentration index. We have used Herphindal and Entropy measure for crop diversification and locational quotient measure has been used to measure crop concentration. The result shows that in all most all districts, crop specialization is taking place and more so in the last phase of our study. Then employing an ordinary least square we have figured out the major determinants of crop diversification. Keywords: Crop Diversification, Orissa agriculture, crop concentration, spatio-temporal analysis JEL: N55 Q10 Date: 2005-02-26 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpur:0502004&r=all 874. Well Isn't That Spatial?! Handbook of Regional and Urban Economics: A View From Economic Theory Marcus Berliant (Washington University in St. Louis) Review of the 'Handbook of Regional and Urban Economics: Volume 4: Cities and Geography' edited by J.V. Henderson and J.-F. Thisse JEL: R0 Date: 2005-03-03 Date: 2005-04-08 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpur:0503001&r=all 875. Analysis and Measurement of Interactions in Innovation Systems: A Corporative and Sectoral approach. Jon Mikel Zabala Iturriagagoitia (Institute of Innovation & Knowledge Management, INGENIO, CSIC-UPV) Innovation Systems constitute an analysis framework, which allows comprehending the socio-economic structure of a territory. In this context, and due to the importance of interactions, the present research intends to contribute a methodology and a set of indicators which help to increase the knowledge about these interactions, and their impact on the innovative capacity of the territories. The methodology developed will be tested in a multisectoral industrial sector, the Mondragon Cooperative Corporation (MCC) located in the Basque Country. This way, not only the measures defined but also the differences among the Networks that constitute its different sectors will be observed. Keywords: Innovation Systems, Interactions, Innovation Networks, Measures, Mondragon Cooperative Corporation. JEL: O31 O32 R11 Date: 2005-03-11 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpur:0503002&r=all 876. Analysis and measurement of interactions in European Innovation Jon Mikel Zabala Iturriagagoitia (Institute of Innovation & Knowledge Management. INGENIO, CSIC-UPV) Innovation Systems constitute an analysis framework, which allows comprehending the socio-economic structure of a territory. It consists of analyzing the existence of actors such as government institutions, clusters, universities, industries… their main competences, and the interactions into Innovation Networks among them. Thus, authorities (regional, national, local…) are endowed of a tool that allows the creation and development of competitive and efficient Innovation Systems. In this context, and due to the importance of interactions inside Innovation Systems, the present research intends to contribute a methodology which helps us to analyze and measure these interactions produced within Innovation Networks. The methodology developed will be tested in a sector which is present in several European Territories. This way, not only the measures defined but also the differences among the Networks analyzed will be observed and tested. Keywords: Innovation Systems, Interactions, Innovation Networks, Measures. JEL: R Date: 2005-03-11 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpur:0503003&r=all 877. SPATIAL AND SECTORAL PRODUCTIVITY CONVERGENCE BETWEEN EUROPEAN REGIONS, 1975-2000 Julie Le Gallo (IERSO IFReDE-GRES) Sandy Dall'erba (REAL) This paper analyzes the evolution of labor productivity disparities among 145 European regions over 1975-2000 according to the concepts of ?a- and ?O-convergence and emphasizes the importance of including spatial effects and a disaggregated analysis at a sectoral level. We detect a significant - convergence only in aggregate labor productivity and in the services sectors among peripheral regions. We also show that omitting spatial effects leads to biased measures of -convergence. We then estimate a pooled -convergence model including spatial autocorrelation and sectoral differentiation. The results indicate that disparities in productivity levels between core and peripheral regions persist by vary by sector. Keywords: convergence, spatial econometrics, labor productivity, sectoral approach JEL: O52 R11 R15 Date: 2005-03-16 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpur:0503004&r=all 878. POLICY INNOVATION IN FEDERAL SYSTEMS Christos Kotsogiannis (University of Exeter) Robert Schwager (Georg-August-Universitat Gottingen) Conventional wisdom has it that policy innovation is better promoted in a federal rather than in a unitary system. Recent research, however, has provided theoretical evidence to the contrary: a multi-jurisdictional system is characterized---due to the existence of a horizontal information externality---by under- provision of policy innovation. This paper presents a simple model that introduces political competition for federal office. Under such competition political actors use the innovative policies in order to signal ability to the electorate. In the equilibrium analyzed policy innovation occurs more frequently than in a unitary system. It is thus shown that, once electoral motives are accounted for, the conventional wisdom is validated. Keywords: Fiscal federalism; policy innovation; policy experimentation. JEL: H77 R59 Date: 2005-04-04 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpur:0504001&r=all 879. Inter-Regional Price Convergence and Market Integration in Russia Konstantin Gluschenko (Institute of Economics & Industrial Engineering, Siberian Branch of the Russian Academy of Sciences) The paper analyzes a spatial pattern of goods market integration in Russia. By the spatial pattern is meant a state of each individual region of the country: whether it is integrated, and if not, whether it moves towards integration. Time series of the cost of the basket of 25 basic foods across 75 regions of Russia for 1994-2000 with monthly frequency are used as the empirical stuff. With the use of nonlinear cointegration relationship that includes asymptotically subsiding trend capturing movement towards integration, 36% of Russian regions are found to be integrated with the national market; 44% of them are non- integrated, but are tending to integration with the national market; and 20% of regions are non-integrated and having no such a trend. It is found that s-convergence of regional prices takes place, implying that, despite the presence of regions not tending to integration, the predominant trend is the improvement in market integration. Keywords: market integration, law of one price, price dispersion, convergence, Russian regions JEL: C32 P22 R10 R15 Date: 2005-04-08 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpur:0504002&r=all 880. Testing the 'new economic geography': a comparative analysis based on EU regional data Bernard Fingleton (Cambridge University) This paper evaluates 'new economic geography' theory by comparing it with a competing non-nested model derived from urban economics. Using bootstrap inference and the J-test, the paper shows that while NEG theory is supported by the data, it needs to be modified to achieve this, and it is not the only, or even the best or simplest, explanation of regional wage variations across the EU. Keywords: 'new economic geography', urban economics, bootstrap, J test JEL: R Date: 2005-04-11 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpur:0504003&r=all 881. The Available Information for Invariant Tests of a Unit Root Patrick Marsh This paper considers the information available to invariant unit root tests at and near the unit root. Since all invariant tests will be functions of the maximal invariant, the Fisher information in this statistic will be the available information. The main finding of the paper is that the available information for all tests invariant to a linear trend is zero at the unit root. This result applies for any sample size, over a variety of distributions and correlation structures and is robust to the inclusion of any other deterministic component. In addition, an explicit bound upon the power of all invariant unit root tests is shown to depend solely upon the information. This bound is illustrated via comparison with the local-to-unity power envelope and a brief simulation study illustrates the impact that the requirements of invariance have on power. URL: http://d.repec.org/n?u=RePEc:yor:yorken:05/03&r=all 882. Dispersion of Opinion and Stock Returns WILLIAM N. GOETZMANN (Yale School of Management - International Center for Finance) MASSIMO MASSA (INSEAD - Department of Finance) We use a panel of more than 100,000 investor accounts in US stocks over the period 1991-1995 to construct an investor-based measure of dispersion of opinion, unlike the analyst based measure used in the literature. We use this measure to test two competing hypotheses: the sidelined investors hypothesis and the uncertainty/asymmetric information hypothesis. We find evidence that supports the sidelined-investors hypothesis. We show that the dispersion of opinion of the investors in a stock is positively related to the contemporaneous returns and trading volume of the stock and negatively related to its future returns. Moreover, dispersion of opinion aggregates across many stocks and generates factors that have a market-wide effect, affecting the stock equilibrium rate of return and providing additional explanatory power in a standard asset-pricing model. This supports the interpretation of dispersion of opinion as a risk factor. We also show that dispersion of opinion among retail investors Granger causes dispersion of opinion among analysts. Keywords: Dispersion of opinion, asset prices, volatility JEL: D10 G10 Date: 2005-04-12 URL: http://d.repec.org/n?u=RePEc:ysm:somwrk:ysm444&r=all 883. British Investment Overseas 1870-1913: A Modern Portfolio Theory Approach WILLIAM N. GOETZMANN (Yale School of Management - International Center for Finance; National Bureau of Economic Research (NBER)) Andrey Ukhov (Indiana University Bloomington - Department of Finance) Many scholars have asked whether British investors benefited from overseas investment investing in the 19th century and whether this export of capital had negative effects. We re-visit the issue using modern portfolio theory. We examine the set of investment opportunities available to British investors, the developments in information transmission technology, and advances in financial and investment theory at the time. We use meanvariance optimization techniques to take into account the risk and return characteristics of domestic and international investments available to a British investor, and to quantify the benefits from international diversification. Evidence suggests that capital export was a consequence of both the opportunity and the understanding of diversification. Foreign assets offered higher rates of return, but equally important, they offered significant diversification benefits. Even when - by setting expected return on each foreign asset class equal to that of the corresponding UK asset class - we put foreign assets at a disadvantage, we find that it was rational for a British investor to include foreign debt and equity in the portfolio. Keywords: International Diversification, Modern Portfolio Theory, International Investment Flows, British Overseas Investment JEL: N24 Date: 2005-04-13 URL: http://d.repec.org/n?u=RePEc:ysm:somwrk:ysm445&r=all 884. Bubble Investors: What Were They Thinking? WILLIAM N. GOETZMANN (Yale School of Management - International Center for Finance; National Bureau of Economic Research (NBER)) Ravi Dhar (International Center for Finance at Yale School of Management) We surveyed a large sample of investors who bought stock in a telecommunications company at least once in the 1999-2000 period. We solicited their views on the efficiency of the stock market, and the basis for their personal trading decisions. A significant fraction appear to hold beliefs inconsistent with various implications of the efficient market hypothesis. Their motives for trade are based upon a belief in the value of fundamental research and a belief in the importance of past price trends. These investors on average believe that markets over-react to news announcements. Many admitted to buying stocks they believed at the time to be over-valued, but claimed to have done so on the anticipation that the share prices would continue to rise. Date: 2005-04-13 URL: http://d.repec.org/n?u=RePEc:ysm:somwrk:ysm446&r=all 885. Disposition Matters: Volume, Volatility and Price Impact of Behavioral Bias William N. Goetzmann (Yale School of Management - International Center for Finance) Massimo Massa (INSEAD - Department of Finance) We test the market impact of the disposition effect. We rely on the Grinblatt and Han (2002) model and derive testable implications about the expected relationship between the preponderance of disposition investors in the market and stock volatility, return and trading volume. We use a large sample of individual accounts over a six-year period to construct a variable that acts as proxy for the representation in the market of disposition investors. We show that, at a daily frequency, when the fraction of \\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\'ir rational\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\ \\\\\' investor trades in a stock increases, stock volatility, return and trading volume decrease. We further show that such a stock-specific disposition acts as proxy to aggregates at the market level, generating a common factor. Statistical exposure to such a disposition-related factor explains cross-sectional differences in daily returns, after controlling for a host of other factors and characteristics. Date: 2005-04-13 URL: http://d.repec.org/n?u=RePEc:ysm:somwrk:ysm447&r=all 886. History and the Equity Risk Premium William N. Goetzmann (Yale School of Management - International Center for Finance) Roger Ibbotson (Yale School of Management) We summarize some of our own past findings and place them in the context of the historical development of the idea of the equity risk premium and its empirical measurement by financial economists. In particular, we focus on how the theory of compensation for investment risk developed in the 20th century in tandem with the empirical analysis of historical investment performance. Finally, we update our study of the historical performance of the New York Stock Exchange over the period 1792 to the present, and include a measure of the U.S. equity risk premium over more than two centuries. This last section is based upon indices constructed from individual stock and dividend data collected over a decade of research at the Yale School of Management, and contributions by other scholars. Keywords: financial history, equity premium JEL: N2 G11 Date: 2005-04-13 URL: http://d.repec.org/n?u=RePEc:ysm:somwrk:ysm448&r=all 887. More Social Security, Not Less WILLIAM N. GOETZMANN (Yale School of Management - International Center for Finance; National Bureau of Economic Research (NBER)) This paper explores the feasibility of a government-sponsored insurance company, patterned after the government-sponsored mortgage agencies, that would be authorized to sell government- insured wage-indexed retirement annuities. This enterprise would assume the current obligations and cash flows of the social security system in exchange for the exclusive right to sell additional insurance contracts. It may or may not choose to finance itself through the issuance of equity shares. The empirical analysis in the paper focuses on the stochastic nature of the liabilities faced by such an agency and in particular examines the optimal portfolio of assets required to hedge wage- indexed liabilities. Keywords: Social Security, Wage Indexation JEL: G22 H55 Date: 2005-04-13 URL: http://d.repec.org/n?u=RePEc:ysm:somwrk:ysm449&r=all 888. The History of Corporate Ownership in China: State Patronage, Company Legislation, and the Issue of Control WILLIAM N. GOETZMANN (Yale School of Management - International Center for Finance) ELISABETH KOLL (Case Western Reserve University - Department of History) This paper examines the emergence of corporate ownership in China from the final decades of the Qing empire in the late 19th century to the early Republican period in the 1910s and 1920s. By analyzing the actual process of incorporation, the development of the legal and financial environment, in particular the role of the state, we ask whether the top-down approach, in which the central government established a legal framework for corporate enterprise based on Western models and the assumption that it would work as it did for Western firms and markets, was a viable approach to the modernization of a financial system traditionally dominated by family businesses and economic state patronage. Using business records from turn-of-the-century Chinese corporate companies, this paper argues that the government\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\ \\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\ \\\\\'s top-down approach, while clearly well-intentioned, created a framework which only insufficiently promoted the system of corporate capitalism in pre-war China. JEL: G15 N25 Date: 2005-04-14 URL: http://d.repec.org/n?u=RePEc:ysm:somwrk:ysm450&r=all 889. Performance Persistence WILLIAM N. GOETZMANN (Yale School of Management - International Center for Finance) STEPHEN J. BROWN (NYU Stern School of Business) We explore performance persistence in mutual funds using absolute and relative benchmarks. Our sample, largely free of survivorship bias, indicates that relative risk-adjusted performance of mutual funds persists, however persistence is mostly due to funds that lag the S&P 500. A profit analysis indicates that poor performance increases the probability of disappearance. A year-by-year decomposition of the persistence effect demonstrates that the relative performance pattern depends upon the time period observed, and it is correlated across managers. Consequently, it is due to a common strategy that is not captured by standard stylistic categories, or risk adjustment procedures. JEL: G14 Date: 2005-04-14 URL: http://d.repec.org/n?u=RePEc:ysm:somwrk:ysm451&r=all 890. A Note on the Impossibility of a Satisfactory Concept of Stability for Coalition Formation Games Salvador Barbera Anke Gerber In this note we show that no solution to coalition formation games can satisfy a set of axioms that we propose as reasonable. Our result points out that “solutions” to the coalition formation cannot be interpreted as predictions of what would be “resting points” for a game in the way stable coalition structures are usually interpreted. Keywords: Hedonic game, coalition formation, stability JEL: C71 URL: http://d.repec.org/n?u=RePEc:zur:iewwpx:238&r=all 891. Why Do Real Estate Brokers Continue to Discriminate? Evidence from the 2000 Housing Discrimination Study Bo Zhao (Center for Policy Research, Maxwell School, Syracuse University) Jan Ondrich (Center for Policy Research, Maxwell School, Syracuse University) John Yinger (Center for Policy Research, Maxwell School, Syracuse University) This paper studies racial and ethnic discrimination in discrete choices by real estate brokers using national audit data from the 2000 Housing Discrimination Study. It uses a fixed effects logit model to estimate the probability that discrimination occurs and to study the causes of discrimination. The data set makes it possible to control for auditors' actual demographic and socioeconomic characteristics, along with the characteristics assigned for the purposes of the audit. The study finds that discrimination continues to be strong but also documents a downward trend in both the scope and incidence of discrimination since 1989. The estimations also identify both brokers' prejudice and white customers' prejudice as causes of discrimination. JEL: J15 R31 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:max:cprwps:67&r=all 892. A New Approach to Modeling Decision-Making under Uncertainty and Defining Subjective Probabilities Edi Karni This paper presents axiomatic models of decision making under uncertainty that avoid the use of a state space. The models are ( a) general subjective expected utility theory with action- dependent subjective probabilities and effect-dependent utilities the cases of effect-independent preferences and effect- independent valuations are obtained as special instances) and (b) a nonexpected utility theory involving well-defined families of action-dependent subjective probabilities on effects and utility representation that is not necessarily linear in these probabilities (a probabilistic sophistication version of this model, with action-dependent subjective probabilities is obtained as a special case) Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:jhu:papers:519&r=all 893. Heterogeneity, State Dependence and Health Timothy J Halliday (Department of Economics, University of Hawaii at Manoa) (John A Burns School of Medicine) In this paper, we use longitudinal data on Self-Reported Health Status from the Panel Study of Income Dynamics to estimate a model of the evolution of health over the life-cycle. The model allows for two sources of persistence in health: unobserved heterogeneity, which models an individual’s (unobserved) ability to cope with health shocks, and state dependence, which models the extent to which the ability to cope with health shocks depends on health status. We allow for flexibility in both sources of persistence. Estimation indicates that heterogeneity is an important determinant of health suggesting that a person’s health today has important antecedents earlier on in life. We also find evidence of state dependence. However, its magnitude depends crucially on the individual’s age and unobserved heterogeneity. The relative contributions of heterogeneity and state dependence that we uncover have different implications for how health policy should be conducted. Keywords: health, dynamic panel data models, gradient JEL: I1 C5 Date: 2005 URL: http://d.repec.org/n?u=RePEc:hai:wpaper:200503&r=all 894. Business Cycles, Migration and Health Timothy J Halliday (Department of Economics, University of Hawaii at Manoa) This comment uses data from the PSID to investigate how selective migration affects the relationship between business cycles and health. We show that, among the healthy, migration is used to insure against macroeconomic fluctuations. However, among the unhealthy, there is no relationship between migration and business cycles. This suggests that recessions should induce an out-migration of disproportionately healthy people from economically depressed areas. This implies that - ceterus paribus mortality and morbidity rates should be counter-cyclical. Date: 2005 URL: http://d.repec.org/n?u=RePEc:hai:wpaper:200504&r=all 895. FDI and Trade – Two Way Linkages? Joshua Aizenman (Department of Economics, University of California at Santa Cruz) Ilan Noy (Department of Economics, University of Hawaii at Manoa) The purpose of this paper is to investigate the intertemporal linkages between FDI and disaggregated measures of international trade. We outline a model exemplifying some of these linkages, describe several methods for investigating two-way feedbacks between various categories of trade, and apply them to the recent experience of developing countries. After controlling for other macroeconomic and institutional effects, we find that the strongest feedback between the sub-accounts is between FDI and manufacturing trade. More precisely, applying Geweke (1982)’s decomposition method, we find that most of the linear feedback between trade and FDI (81%) can be accounted for by Granger- causality from FDI gross flows to trade openness (50%) and from trade to FDI (31%). The rest of the total linear feedback is attributable to simultaneous correlation between the two annual series. Keywords: financial openness, commercial openness, trade, foreign direct investment JEL: F15 F21 F36 H21 Date: 2005 URL: http://d.repec.org/n?u=RePEc:hai:wpaper:200505&r=all 896. A Tale of Two Effects Paul Evans (Department of Economics, Ohio State University) Xiaojun Wang (Department of Economics, University of Hawaii at Manoa) This paper adopts a New Keynesian approach to analyze the relationship between nominal interest rates and prices. In this new framework, both a positive relation between interest rates and price levels (i.e., a positive Gibson effect) and a negative relation between interest rates and subsequent price changes (i.e. a negative Fama-Fisher effect) arise when money is supplied inelastically and prices are flexible. Such an economy is subject to Gibson’s Paradox, a long-standing puzzle in monetary economics, and a novel paradox identified here, a Fama-Fisher Paradox. By contrast, economies characterized by elastic money and sticky prices are not so paradoxical since nominal interest rates are positively related to subsequent inflation and ambiguously related to the price level. Empirical analysis of nearly two centuries of data for ten countries supports the new theory. Keywords: Fama-Fisher Paradox, Gibson’s Paradox, inelastic money, flexible prices, gold standard JEL: E31 E42 E43 Date: 2005 URL: http://d.repec.org/n?u=RePEc:hai:wpaper:200506&r=all 897. Sorting, Selection, and Transformation of Return to College Education in China Belton M Fleisher (Department of Economics, Ohio State University) Haizheng Li (Georgia Tech) Shi Li (Chinese Academy of Social Sciences) Xiaojun Wang (Department of Economics, University of Hawaii at Manoa) We estimate selection and sorting effects on the evolution of the private return to schooling for college graduates during China’s reform between 1988 and 2002. We find evidence of substantial sorting gains under the traditional system, but gains have diminished and even become negative in the most recent data. We take this as evidence consistent with the growing influence of private financial constraints on decisions to attend college as tuition costs have risen and the relative importance of government subsidies to higher education has declined. Keywords: return to schooling, sorting gains, heterogeneity, financial constraints, comparative advantage, China JEL: J31 J24 O15 Date: 2005 URL: http://d.repec.org/n?u=RePEc:hai:wpaper:200507&r=all 898. Is the Price Elasticity of Money Demand Always Unity? Paul Evans (Department of Economics, Ohio State University) Xiaojun Wang (Department of Economics, University of Hawaii at Manoa) Including both monetary gold and nonmonetary gold in a standard money-in-utility model, we establish a presumption that the price elasticity of money demand should be less than one under commodity standards. Applying cointegration methods to data of the world, the United Kingdom, and the United States, we find support for the new theory. Keywords: money demand, price homogeneity, commodity standard JEL: E41 E42 Date: 2005 URL: http://d.repec.org/n?u=RePEc:hai:wpaper:200508&r=all 899. Subsidiarity, Solidarity, and Asymmetry Richard M. Bird (University of Toronto) Robert D. Ebel (Urban Institute) An important characteristic of many countries is that they exhibit, to greater or lesser degrees, some 'asymmetry' in the way in which different regions are treated by their intergovernmental fiscal systems. This paper explores some of the varied extents and manners in which such asymmetrical treatment may help or hinder the maintenance of an effective nation-state, where 'effectiveness' encompasses both how effectively, efficiently, and (perhaps) equitably public services are provided throughout the national territory and also the effects asymmetry may have on the very existence of 'fragmented' nation-states Keywords: federalism, decentralization, asymmetry, subsidiarity JEL: H70 D74 Date: 2005-04 URL: http://d.repec.org/n?u=RePEc:ttp:itpwps:0509&r=all 900. Vertical differentiation with non-uniform consumers’ distribution Jean-Marc Bonnisseau (CERMSEM) Rim Lahmandi-Ayed (ISG de Tunis and LEGI) The note explores a vertical differentiation model with continuous non-uniform consumers' distribution. First some results concerning the finiteness property obtained with uniform consumers' distribution are generalized. Second we prove an existence result of price equilibrium when the distribution is concave. Finally we exhibit a counter-example to the existence of price equilibrium to show the importance of the concavity assumption on the distribution. Keywords: Vertical differentiation, non-uniform distribution, price equilibrium existence JEL: D42 D43 L11 Date: 2004-12 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:b04114&r=all 901. Choices under ambiguity with familiar and unfamiliar outcomes Marcello Basili (Universite de Sienne) Alain Chateauneuf (CERMSEM) Fulvio Fontini (Universite de Florence) This paper considers a decision-making process under ambiguity in which the decision-maker is supposed to split outcomes between familiar and unfamiliar ones. She is assumed to behave differently with respect to unfamiliar gains, unfamiliar losses and customary (familiar) outcomes. In particular, she is supposed to be pessimistic on gains, optimistic on losses and ambiguity neutral on the familiar outcomes. A generalization of the usual Choquet integral is formalized when the decision-maker holds both capacities and probabilities. A characterization of the decision- maker's behavior is provided for a specific subset of capacities, in which it is shown that the decision-maker underestimates the unfamiliar outcomes while is linear in probabilities on customary ones. Keywords: Ambiguity, capacity, Choquet integral, representation theorem, cumulative prospect theory JEL: D81 Date: 2004-10 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:b04115&r=all 902. Equilibria in production economies Charalambos D. Aliprantis (Purdue University) Monique Florenzano (CERMSEM) Rabee Tourky (University of Melbourne) This paper studies production economies having a locally convex topological vector commodity space ordered by a closed and generating convex come such that the order intervals are topologically bounded. The generally assumed lattice properties on the commodity-price duality are replaced by an assumption of uniform properness of the Riesz-Kantorovich functional associated with a list of continuous linear functionals. On such an economy, our assumptions are quite general. In particular, consumers preferences are non-ordered, not necessarily monotone, and we do not assume free-disposal. The equilibrium existence theorem established in this paper is the most general for production economies in the literature Keywords: Production economies, equilibrium, Edgeworth equilibrium, properness, Riesz-Kantorovich formula, sup- convolution JEL: C61 C62 D20 D46 D51 Date: 2004-11 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:b04116&r=all 903. Exact capacities and star shaped distorted probabilities Zaier Aouani (CERMSEM) We are interested in this work, in capacities which are deformations of probability i.e. v = f o P, we characterize respectively balanced, totally balanced, exact and convex capacities by properties concerning the probability transformation function f. And we give the explicit expression, in the case of a convex capacity v = f o P, of a probability in the core of v which coincides with v on a given finite chain of elements of the algebra A. We end this work by two notions of increase in risk recently studied in [4] and connected with star- shaped functions and with an application to the optimality of the deductible insurance studied in [14] Keywords: Cooperative game, capacity, balanced, exact, core, increase in risk JEL: C71 D80 Date: 2004-12 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:b04117&r=all 904. The limit-price exchange process Gael Giraud (CERMSEM) We define a continuous-time trading process for Arrow-Debreu exchange economies such that (1) At each time, myopic traders play a (weakly) dominant strategy in Mertens' (2003) limit price strategic market game ; (2) existence of continuous trade curves holds under weak conditions and in particular even if there is no static Walras equilibrium ; (3) every trade curve converges to some Pareto optimal point ; (4) for a generic choice of utilities and initial endowments, there is a piecewise unique trade curve, which is smooth and depends continuously upon initial conditions ; (5) in the 2 x 2 case, for every interior starting point, the vector field corresponding to our dynamics is real-analytic ; moreover, trade and price curves can be fully characterized and numerically simulated. Keywords: Non-tatonnement, price-quantity dynamics, temporary equilibrium, limit-price mechanism, myopia JEL: C61 C62 C68 D50 Date: 2004-09 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:b04118&r=all 905. Walrasian non-tatonnement with incomplete and imperfect markets Gael Giraud (CERMSEM) Static competitive equilibria in economies with incomplete markets are generically constrained suboptimal. Allocations induced by strategic equilibria of imperfectly competitive markets are also generically inefficient. In both cases, there is scope for Pareto-improving amendments. Considering an extension of the limit-price process introduced in Giraud (2004) to the setting of incomplete markets (with infinitely many uncertain states) populated by finitely many players, we show that these two celebrated inefficiency problems can be overcomed when rephrased in a non-tatonnement process lasting sufficiently long. In our model, traders are myopic and trade financial securities in continuous time, by sending limit-orders in order to select a portfolio that maximizes the (linear) first-order approximation of the conditional expectation of their indirect utility (for assets). We show that financial trade curves converge (in probability) to some interim second-best efficient rest-point unless some miscoordination stops the dynamics at some inefficient, but locally unstable point. Keywords: Non-tatonnement, price-quantity dynamics, market efficiency, incomplete markets JEL: C61 C62 C68 D50 D52 Date: 2004-08 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:b04119&r=all 906. A note on the Dreze’s criterion for large capitalist firms Jean-Marc Bonnisseau (CERMSEM) Oussama Lachiri (CERMSEM) The paper extends the Dreze's Criterion [Investment under private ownership : optimality, equilibrium and stability, in "Allocation under Uncertainty ; Equilibrium and Optimality", Wiley, New York, 1974, p.129] for firms to non-smooth and non- convex technologies and to non-ordered preferences for the consumers. Technically, the proofs follow the lines of Guesnerie [Pareto Optimality in Non-convex Economies, in Econometrica, 43, p. 1-31, (1975)]. Using recent tools of non-smooth analysis, we exhibit the first-order-necessary conditions for constrained Pareto optimal allocations. The Dreze's criterion for firms is recovered, but the profit maximization is replaced by a first- order- necessary condition for optimality, together with other relations between state prices and consumptions. A new stock- market equilibrium is formalized. We show that stockholders buy nothing but stocks of a firm that maximize his expected profit with respect to his own shadow price. Keywords: Stock market, non-smooth analysis, present value, market value JEL: C60 D51 D52 D60 Date: 2004-01 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:b04120&r=all 907. Global uniqueness and money non-neutrality in a Walrasian dynamics without rational expectations Gael Giraud (CERMSEM) Dimitrios Tsomocos (University of Oxford) We define a non-tatonnement dynamics in continuous-time for pure- exchange economies with outside and inside fiat money. Traders are myopic, face a cash-in-advance constraint and play dominant strategies in a short-run monetary strategic market game involving the limit-price mechanism. The profits of the Bank are redistributed to its private shareholders, but they can use them to pay their own debts only in the next period. Provided there is enough inside money, monetary trade curves converge towards Pareto optimal allocations ; money has a positive value along each trade curve, except on the optimal rest-point where it becomes a veil while trades vanish. Moreover, generically, given initial conditions, there is a piecewise globally unique trade- and-price curve not only in real, but also in nominal variables. Finally, money is locally neutral in the short-run and non- neutral in the long-run. Keywords: Bank, money, price-quantity dynamics, limit-price mechanism, inside money, outside money JEL: D50 E40 E41 E50 E58 Date: 2004-09 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:b04121&r=all 908. On the objective of firms under uncertainty with stock markets. Jean-Marc Bonnisseau (CERMSEM) Oussama Lachiri (CERMSEM) In a multi-period, multi-commodity economy with stock markets, we try to extend the work of Dreze (1974) to define the behavior of the firms. We exhibit first order necessary conditions for a constrained Pareto optimal allocation. The financial constraints lead to non-colinear suppporting spot prices for the consumers at each node. Nevertheless, the firms are satisfying a first order necessary condition for profit maximization with respect to a price computed as the Dreze's prices. These prices are also consistent in the sense that the present value of the firms computed with the personal prices of the stockholders and with the Dreze's prices coincide when short sales are allowed. We also show that these conditions are simpler if we consider an allocation at which each consumer maximizes his preferences, when they are smooth. This allows us to give a formal definition for the objective of the firms, which extend the Dreze's criterion. We also discuss different definitions of constrained feasibility and we provide the related necessary conditions, which do not differ for the production sector. Keywords: Constrained Pareto optimality, multi-period, firm's behavior, incomplete markets, Dreze's criterion, stock market. JEL: C60 D51 D52 D60 Date: 2004-08 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:b04122&r=all 909. Existence of competitive equilibrium in a single-sector growth model with elastic labor Cuong Le Van (CERMSEM) Yiannis Vailakis (CERMSEM) We prove existence of competitive equilibrium in a version of a Ramsey model in which leisure enters the utility function. The analysis is carried out by means of a direct and technically simple approach that allows us to obtain detailed results concerning the behavior of equilibrium allocations and prices. Keywords: Single-Sector growth model, competitive equilibrium, elastic labor supply. JEL: C62 D51 E13 Date: 2004-12 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:b04123&r=all 910. Stable pricing in monopoly and equilibrium-core of cost games Vincent Iehle (CERMSEM) We prove the existence of subsidy free and sustainable pricing schedule in multiproduct contestable markets. We allow firms to discriminate the local markets that are composed by a set of the products line and a set of agents. Results are obtained under an assumption of fair sharing cost and under boundary condition of demand functions. The pricing problem is modelled in terms of equilibrium-core allocations of parameterized cost games. Keywords: Cooperative games, contestable markets, sustainability, subsidy free, parameterized cost games JEL: C71 L11 L12 Date: 2004-10 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:b05023&r=all 911. Incomplete markets and monetary policy. Pascal Gourdel (CERMSEM) Leila Triki (CERMSEM) We consider an extension of a general equilibrium model with incomplete markets that considers cash-in-advance constraints. The total amount of money is supplied by an authority, which produces at no cost and lends money to agents at short term nominal rates of interest, meeting the demand. Agents have initial nominal claims, which in the aggregate, are the counterpart of an initial public debt. The authority covers its expenditures, including initial debt, through public revenues that consists of taxes and seignorage, and distributes its eventual budget surpluses through transfers to individuals, while no further instruments are available to correct eventual budget deficits. We define a concept of equilibrium in this extended model, and prove that there exists a monetary equilibrium with no transfers. Moreover, we show that if the price level is high enough, a monetary equilibrium with transfers exists. Keywords: Cash-in-advance constraints, incomplete markets, nominal assets, monetary equilibrium, money, nominal interest rate JEL: C62 D52 E40 E50 G10 Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:b05024&r=all 912. Monopole, strategies multiproduit et incitation a la recherche et developpement Jean-Marc Bonnisseau (CERMSEM) Hend Ghazzai (CERMSEM) In the framework of a vertical differentiation model where consumers are continuously distributed with respect to their intensity of preference for quality and their income, we studdy the optimal strategy of a natural monopoly : how many qualities to produce ? Which qualities should be produced? What prices have to be set to maximize the monopoly profit? Considering costless production, the monopoly optimal strategies are such that the consumers with the same income buy the same quality. The monopoly never discriminates with respect to the intensities of preference for quality. If intensities of preference for quality are very low, the monopoly offers the highest quality and all the consumers buy. Else, the monopoly, offers infinity of qualities. However, according to the model's parameters, we can have discrimination with respect to the incomes such that the poor consumers do not buy. If the highest quality is not sufficiently high, the monopoly cannot extract all the surplus of the rich consumers. This may be interpreted as an incitation to investment in research and development to improve the quality. Keywords: Monopoly, vertical differentiation, multiproduct strategy JEL: D31 D42 L12 Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:b05025&r=all 913. Duality and optimal strategies in the finitely repeated zero-sum games with incomplete information on both sides Bernard De Meyer (CERMSEM) Alexandre Marino (CERMSEM) The recursive formula for the value of the zero-sum repeated games with incomplete information on both sides is known for a long time. As it is explained in the paper, the usual proof of this formula is in a sense non constructive : it just claims that the players are unable to guarantee a better payoff than the one prescribed by formula, but it does not indicates how the players can guarantee this amount. In this paper we aim to give a constructive approach to this formula using duality techniques. This will allow us to recursively describe the optimal strategies in those games and to apply these results to games with infinite action spaces. Keywords: Repeated games, dual games, incomplete information, recurrence formula Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:b05027&r=all 914. Bilateral donors’ interest vs. Recipients’ development motives in aid allocation : do all donors behave the same ? Jean-Claude Berthelemy (TEAM) In this paper, I provide an overall empirical assessment of the motivations of official development assistance granted by rich countries to developing countries, as they are revealed by their aid allocation behaviours. Such behaviours result from a combination of self-interest purposes and of more altruistic development objectives. To perform this analysis, I use a three- dimensional panel dataset, combining the donor, recipient and time dimensions. Such data show a lot of heterogeneity in donor behaviours. Thanks to the width of this dataset, I can properly test differences of parameters among donors. In particular, these tests provide a way to compare the degree of altruism of the different donors. Keywords: International aid allocation, altruism JEL: F35 C23 C24 Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:bla05001&r=all 915. Does work pay in France? Monetary incentives and the guaranteed minimum income Marc Gurgand (PSE, CREST and IRES) David Margolis (TEAM) Most welfare programs generate high marginal tax rates on labor income. This paper uses a representative sample of individuals on France's main welfare program (the Revenu Minimum d'Insertion, or RMI) to estimate monetary gains to employment for welfare recipients. This is based on the distribution of potential monthly earnings faced by each individual, as inferred from the distribution of observed wages and working time. Taking account of the welfare earnings top-up program (interessement), we find that gains are almost always positive, but that their amount is very low, especially for single mothers. Interessement is found to have a small impact, because of its provisional nature. Gains are positively related to the probability that a welfare recipient in 1996 will be observed in employment in 1998. Using a simple structural model, we interpret this as a labor supply effect. Keywords: Welfare, labor earnings, transfers, tax-system JEL: I38 J31 C34 Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:bla05002&r=all 916. Using panel unit root tests to evaluate the income convergence hypothesis in middle East and North Africa countries Imene Guetat (TEAM) Francisco Serranito (Universite Paris 13) This article aims at testing the convergence hypothesis in MENA region using new tests of a unit root in panel data. Quah (1994, 1998), Evans & Karras (1996) and Bertrand & Jones (1996) recommend this technique to evaluate the income convergence hypothesis. According to them it avoids econometric problems of the cross-countries growth regressions testing convergence and sample bias of the multivariate cointegration techniques. We test both the absolute and the conditional convergence with panel unit roots tests using the Summers and Heston's data 5.2 and 6.1 on the periods of 1960 to 1990 and from 1960 to 2000. The absolute convergence hypothesis use panel unit roots test with no fixed individual effects. The catching-up hypothesis is accepted for most groups of the region countries during both periods (1960 to 1990 and 1960 to 2000). If we allow a break in the unit root tests, the hypothesis is accepted for more groups. The conditional convergence requires panel unit root tests with fixed individual effects. Again, during the whole periods, the conditional convergence is accepted for the major part of the remaining groups of MENA countries. Keywords: Conditional convergence, catching-up, panel unit root tests, Middle East and North Africa. JEL: B23 F1 O1 O47 O5 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:bla05003&r=all 917. The engagement in the non-agricultural sector as a risk- mitigating strategy in rural Pakistan Tania Rajadel (TEAM) The paper investigates whether, as is often suggested by the literature, diversification towards the non-agricultural sector is considered as a risk- mitigating strategy by rural Pakistani households. This issue has already been addressed but usually as an ex post mechanism, i.e. smoothing consumption or income once a shock has occurred. The present work tests whether ex ante engagement in the non-agricultural sector is partly motivated by a desire to mitigate risk. The main feature of the paper is the use of an ex ante food vulnerability estimate. Vulnerability is defined as the probability of falling below a given threshold in the future. After constructing a vulnerability variable for each household, we run three separate probit estimations, one for each type of non-agricultural activity (unqualified wage labour, qualified wage labour, and self-employment), in order to evaluate the impact of vulnerability on participation to the non- agricultural sector. We take into account the endogeneity of the vulnerability estimate. We find that, conversely to what is usually assumed in the literature, vulnerable households are not more likely than others to engage in the non-agricultural sector mainly because of the inefficient organisation of wage labour markets and entry barriers. Keywords: Risk, insurance, vulnerability, non-farm employment, Pakistan. JEL: D91 O16 Q12 Date: 2004-12 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:bla05004&r=all 918. Capital quasi-fixity and the estimation of markups Herve Boulhol (IXIS-CIB and TEAM) The treatment of capital costs, as either fixed or variable is a key for estimating markups. Data leans clearly towards fixity, which explains the high markups emphasized in previous studies based on Roeger's methodology. Direct estimation from the ratio of output over variable costs is preferable. Keywords: Markups, capital fixity, imperfect competition. JEL: L11 L13 L60 Date: 2004-12 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:bla05005&r=all 919. Regional convergence and agglomeration in Argentina : a spatial panel data approach Nicole Madariaga (TEAM) Sylvie Montout (TEAM) Patrice Ollivaud (OECD) This paper examines the per capita income convergence process among 23 Argentinian provinces over the period 1983-2002. The purpose of this work is to apply new estimation methods following two-step procedure as in Badinger et al. (2004). We combine a spatial filtering of variables to remove the spatial correlation ( Getis and Griffith, 2002) and suitable estimators for dynamic panels (using first-differenced and system GMM estimators). Our estimations on filtered variables reveal a conditional convergence process between Argentinian provinces and a positive and significant impact of agglomeration variables on growth rate. Hence, our results show that ignoring spatial distortions due to geographic proximity misleads estimations and underestimates the speed of convergence specifically for provinces that are distant from Buenos Aires. Moreover, we improve estimations of agglomeration effects when spatial autocorrelation is removed. Keywords: Growth, convergence, spatial dependence, spatial filtering, dynamic panels, Generalized Method of Monuments. JEL: C23 O00 R11 Date: 2005-02 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:bla05006&r=all 920. Do banking crises enhance efficiency? A case study of 1994 Turkish and 1997 Indonesian crises Julien Reynaud (TEAM) Rofikoh Rokhim Drawing together the concepts of inefficiency and banking crisis is directly inspired by business cycles theory where a crisis is the turning point from which the market/economy is recovering. If inefficiency plays a role in the occurrence of banking crisis, the post-crisis period should be the time for recovering efficiency. Moreover, traditional banking theory predicts that the crisis should eliminate bad banks from the system, leading to a more efficient banking sector. We tested this hypothesis on the 1994 Turkish and 1997 Indonesian banking crises using stochastic cost frontier analysis. Our results show an interesting pattern, opposed to what theory predicts : we find that inefficiency increase after the crises in both banking sectors. Keywords: Banking crisis, efficiency, Indonesia, Turkey. JEL: G14 G21 G28 G34 Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:bla05007&r=all 921. If only I could borrow more! Production and consumption credit constraints in the Philippines Marie Godquin (TEAM) Manohar Sharma (IFPRI) This paper provides a new approach to analyzing credit constraints by differentiating which of the household's production and consumption decisions are affected by credit constraints. It also provides a first attempt to estimate of the extent and determinants of credit constraints in the Philippines. Based on direct questions on households' experiences in credit markets, we estimate the percentage of credit-constrained households at 65%. The lack of credit constrained the level of agricultural production of 37% of the farming households; it also constrained the level of family business production of 31% of the households operating such businesses. Credit constraints also limited consumption choices of 21% of the sample households. We found that the presence of credit programs operating in the village and proximity to commercial banks and rural banks reduced the probability of credit constraints in production decisions. Further, some types of households are more likely to experience credit constraints. These are the households with little education, households that own little or no titled land and sugar- producing households. Keywords: Credit constraints, Philippines, Asia. JEL: O12 O16 Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:bla05008&r=all 922. The effects of intellectual property protection on international knowledge contracting Elif Bascavusoglu (TEAM) Maria Pluvia Zuniga (TEAM) Developing countries, and particularly, those with a growing technological capacity, expect foreign technology transfers to increase when strengthening their intellectual property protection (IPR) rights. This paper evaluates empirically the impact of IPR on disembodied knowledge trade. It presents an exploration on Bilateral French Technology Receipts at the industry level for the period 1994-2000. Two main findings stem from our analysis. First, it is found that IPR affects positively international knowledge contracting. Nevertheless, our findings show that the impact of IPR protection differs according to countries' income level and technological capacity. Stronger IPR rights can deter technology contracting in developing economies. Second, the effects of IPR protection are found to differ across industries. Stronger protection is found to be irrelevant to attract knowledge contracting in R&D-intensive industries, contrarily to middle R&D-intensive industries. Lastly, our findings on industries' sensitivity to foreign IPR protection differ from the results reported by survey studies (Mansfield et alii, 1968; Levin et alii, 1987; Cohen et alii, 2000) concerning the relative importance of IPR protection across industries to appropriate innovation. Keywords: Intellectual property rights, international technology transfer, patent protection. JEL: O34 K42 F14 O31 Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:bla05009&r=all 923. Pro-competitive policies and the convergence of markups. Herve Boulhol (IXIS-CIB and TEAM) This paper gives estimates of sectoral markup trends over the last three decades. It concludes with a slight increase of price- cost margins overall, contrary to the generally expected effect of increased competition. More strikingly, it establishes a clear pattern of markup convergence across countries and sectors. These movements explain a notable part of the decline in the labour share. Taking into account labour market imperfections, they suggest that the workers' bargaining power has deteriorated and stress that endogeneous market structure, rent sharing and interactions between product and labour markets are key ingredients for assessing the impacts of increased competition. Keywords: Markup, pro-competitive effect, wage bargaining, labour share JEL: L11 L13 L60 J40 F02 Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:bla05019&r=all 924. Monetary policy transmission in the CEECs : revisited results using alternative econometrics. Jerome Hericourt (TEAM) This paper aims at providing better supported results regarding monetary policy transmission in Central and Eastern European countries (CEECs). In the general frame of VAR models, our study differs from previous research in two main respects. Firstly, we provide estimations that do not rely on the hypothesis of cointegration usually exploited in the related literature, but economically meaningless over less than ten years spans and statistically very fragile. Secondly, we present another set of results, relying on real GDP monthly data that have been rebuilt using the Chow and Lin (1971) method; this allows for an alternative to the traditional industrial production data, a partial and highly unstable proxy variable for output. These original methodological insights lead to results emphasizing the general prevalence of exchange rate and domestic credit channels for monetary policy transmission across the studied countries, despite some persistent national specificity. The empirical evidence also incites to be reasonably optimistic regarding the relevancy of a close integration of these countries into euro area. Keywords: Monetary policy transmission, VAR models, CEECs JEL: E52 E58 F47 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:bla05020&r=all 925. Une mesure econometrique de la formation par les autres au sein de l’entreprise Guillaume Destre (TEAM) We use a model of the diffusion of knowledge which considers one of the principal forms of training found within firms : learning by watching. Using a French INSEE matched employee-employer survey (Le cout de la main d'oeuvre et la structure des salaires 1992, ECMOSS 92), we propose an econometric measure of on-the-job training. The results show that on-the-job training amounts to 42. 75 hours in the mean by year and represents nearly 80% of the total training in the firm. The richness of the model presented here consists in the estimation not only of on-the-job training, but also of the speed of knowledge diffusion in an establishment and the relative knowledge of firm (relative to that of a new worker). Keywords: Human capital, earnings functions, informal training, learning from others JEL: J24 J31 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:bla05021&r=all 926. On-the-job learning and earnings Guillaume Destre (TEAM) Louis Levy-Garboua (TEAM) Michel Sollogoub (TEAM) A simple model of informal learning on-the-job, which combines learning by oneself and learning from others, is proposed in this paper. It yields a closed-form solution that revises Mincer- Jovanovic's (1981) treatment of tenure in the human capital earnings function by relating earnings to the individual's learning potential from jobs and firms. We estimate the structural parameters of this non-linear model on a large French survey with matched employer-employee data. We find that workers on average can learn from others ten percent of their own human capital on entering the firm, and catch half of their learning potential in just two years. The measurement of worker's learning potential in their jobs and establishments provides a simple characterization of primary-type and secondary-type jobs and establishments. We find a strong relationship between the job- specific learning potential and tenure. Predictions of dual labor market theory regarding the positive match of primary-type firms ( which offer high learning opportunities) with highly endowed workers (educated, high wages) are visible at the establishment level but seem to vanish at the job's level. Keywords: Human capital, earnings functions, informal training, learning from others, learning by oneself, returns to tenure, dualism JEL: J24 J31 I2 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:bla05022&r=all 927. Why emotional capital matters in education and in labour? toward an Optimal exploitation of human capital and knowledge management Benedicte Gendron (MATISSE) >From the perspective of the Chicago school, there is no behaviour that is not interpretable as economic. In this paper, we discuss the assertion in the perspective of an optimal constitution and exploitation of Human Capital, through our conceptual framework named Emotional Capital (EC). Referring to emotional intelligence, we show that emotional capital, more than an additional capital, is a booster capital potentializing or energyzing the human, social and cultural capitals, EC is critical to enable human capital formation, accumulation and, its optimal exploitation for individuals and crucial in knowledge management in the today's increasingly complex and competitive global workplace for companies and organisations. Our conceptual model enables to understand student academic success or failure on the one hand, the different occupational and jobs choices and career prospect between men and women, and organizations or companies successes as well, on the other hand. Keywords: Human capital, emotional capital, skills, occupational choice, economics of gender, economics education, education, labour, knowledge management, organizational behavior, personnel management, labor management JEL: A2 D23 D83 I21 J2 J21 J24 J16 M12 M54 Date: 2004-12 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:r04113&r=all 928. La protection des salaries a l’epreuve de l’eclatement des collectifs de travail. Anne Fretel (MATISSE) Heloise Petit (MATISSE) Nadine Thevenot (MATISSE) Professional social protection, as provided by collective or firm agreements, induces inequalities in contents and in access. A historical analysis of employers' pratices in the 19th century, combined with the study of the welfare state formation enabled us to put forward the central role played by firms in implementing a social protection system. This is mainly explained by the use of professional social protection as a management tool (I). More recently, institutional modifications of legal rules ( particularly the Lois Auroux) have created the conditions for increasing the importance of firm agreements and weakening professional regulations. These changes strenghtened the inequalities in social protection in a context of destabilised work groups. On a methodological point of view, the REPONSE survey for 1998 is used to study the firm's role in awarding professional social protection (II). Keywords: Welfare state, social protection, collective agreements, entreprise agreements JEL: B15 J53 H55 Date: 2005-02 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:r05015&r=all 929. Les effets redistributifs des transferts en faveur des familles en France : un eclairage en longue periode. Ai-Thu Dang (MATISSE) Jean-Marie Monnier (MATISSE) The aim of this paper is to analyse how the criteria of horizontal and vertical equity of the French system of family transfers evolved from 1975 till 2002. It focuses primarily on non-contributory benefits and on income taxation and uses family type’s methods. Two main findings can be outlined : firstly, the publicly financed compensation for dependents is better in 1975 than in 2002, especially for families on low or medium incomes. Secondly, the redistributive impact of the French system of family transfers has dropped. Otherwise, we also highlight that the predominant instruments are means-tested benefits in the low end of the revenue scale and income tax rates in the other hand. Keywords: French system of direct and indirect family transfers, horizontal equity, vertical equity, family quotient, target benefits. JEL: D39 D63 H23 Date: 2005-02 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:r05016&r=all 930. Declassement des jeunes et politiques de l’emploi. Exploitation de l’enquete Generation 98 du Cereq Laurence Lize (MATISSE) This research takes an interest to the gap between employment and education of young people in the survey Generation 98 of Cereq. This research compares the positions of young people who are recruited on jobs with classic status and subsidised jobs. A lot of people are downgrading because their level of education are superior to the level of job's qualification. A statistical method (match between qualifications and socio-economic group) is confronted with a subjective approach (the person interviewed feels downgraded or not). These different approaches suggest that downgrading is an important phenomenon; it is stronger in classic labour market than in the subsidised jobs. This fact testifies to the strong selection of the employers. The hypothesis is that relegate position is a queueing problem in the labour market and the subsidised jobs influence the competition for job. Keywords: Labour market, employment policies, subsidised jobs, young people, downgrading. JEL: J18 J21 J24 Date: 2005-02 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:r05017&r=all 931. Les apports du GREMI a l’analyse territoriale de l’innovation ou 20 ans de recherche sur les milieux innovateurs Muriel Tabaries (MATISSE) This paper deals with the last research decades about the concept of milieu innovateur as it has been created and utilized by a European research network, the GREMI, working on the territorial aspects of innovation and development. From the early typologies of territories innovation trajectoires and the analyses of relationship between milieux and innovation networks, to structural and organisational characteristics of milieux and long term evolution trajectories, to interrelations between the milieu and the city, the objective is to show the richness of a concept that allows to understand the rearrangements that occurred since thirty years within firms and territories. Keywords: Territory, innovation, milieu innovateur, trajectories, collective learning JEL: O18 Date: 2005-02 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:r05018&r=all 932. Evolution des institutions financieres et transition entre regimes d’accumulation : le cas de l’Argentine contemporaine Celia Firmin (MATISSE) Transition processes reflect the institutional hierarchy. Financial and monetary institutions changes seem to be the main explanatory factors of these processes. These institutions definition influences also directly macroeconomic operation and by this way others institutions. In the theory of Regulation framework, we will analyse Argentinean regime of accumulation in place under Peron and transition factors towards the current regime, which is characterized by market finance importance. Social confrontation plays here a central role as institutional evolution factor. We will see then financial and monetary institutions changes consequences on macroeconomic operation and employment. Employment becomes in the current accumulation regime the adjustment variable. Keywords: Theory of regulation, history of economic facts, institutional changes, shareholder capitalism, Argentina JEL: E24 E42 E44 E61 N2 N26 N46 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:r05028&r=all 933. Does the distribution of emission permits matter for international competitiveness? Florent Pratlong (ERASME-Ecole Centrale de Paris, EUREQua and PRISM-LASI) This paper analyzes the implications of the distribution of emission permits related to a strategic environmental policy and shows how it alters the competitive relation among firms in the international product market. Our model introduces permits trading into the Brander-Spencer [1985] framework. It analyzes a class of two stages Cournot game involving two governments (Home and Foreign) and their respective industry. It shows the incentive for the Home government to distort is initial distribution of permits from the first-best rule to achieve trade- related policy objectives, enabling its domestic producers to improve their market shares. We establish that the Home government implements a higher distribution of permits than the optimal level. Keywords: Tradable emission permits, international oligopoly, strategic policy. JEL: F13 F18 Q28 Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:v05011&r=all 934. On the impossibility of preference aggregation under uncertainty Thibault Gajdos (EUREQua) Jean-Marc Tallon (EUREQua) Jean-Christophe Vergnaud (EUREQua) We provide a general theorem on the aggregation of preferences under uncertainty. We study, in the Anscombe-Aumann setting a wide class of preferences that includes most known models of decision under uncertainty (and state-dependent versions of these models). We prove that aggregation is possible and necessarily linear if (society's) preferences are smooth. The latter means that society cannot have a non-neutral attitude towards uncertainty on a subclass of acts. A corollary to our theorem is that it is not possible to aggregate maxmin expected utility maximizers, even when they all have the same set of priors. We show that dropping a weak notion of monotonicity on society's preferences allows one to restore the possibility of aggregation of non-smooth preferences. Keywords: Aggregation, Harsanyi, uncertainty, multiple priors. JEL: D70 D81 Date: 2005-02 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:v05012&r=all 935. The effects of technological innovations on employment : a new explanation. Chahnez Boudaya (EUREQua and CIRPEE) This paper investigates principally the effects of a technological innovation on hours worked in a sticky price model. Our challenge is to reproduce the short-run decline in employment supported by a large range of recent works, inspired by Gali ( 1999), regardless of any monetary policy consideration. The model simulations concern the postwar U.S. economy under two different monetary policy : an exogenous rule targeting money supply and a simple Taylor rule. The most interesting result is that the introduction of an input-output production structure counterbalances the full-accommodation of a technological innovation when monetary policy is governed by a Taylor rule, by ( i) providing the model with more price rigidities ; (ii) inducing a substitution effect between intermediate goods and labor input for plausible values of intermediate inputs share. Keywords: Technology shocks, sticky prices, labor, intermediate inputs, Taylor rule, exogenous monetary policy JEL: E23 E24 E31 E32 E52 Date: 2005-02 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:v05013&r=all 936. Comparison of negotiated uniform versus differentiated abatement standards for a transboundary pollution problem. Basak Bayramoglu (PSE and EUREQua) Jean-Francois Jacques (EURiSCO) This paper analyses a transboundary pollution problem between two countries and studies the efficiency comparison of uniform versus differentiated abatement standards when there are imperfect transferts between countries. To achieve this goal, we use a negotiation game and the Nash bargaining solution as equilibrium. On the one hand, we remark that the argument of similarity of countries to defend the use of uniform standards is not appropriate, when there exists high level of fixed costs in abatement technology for symmetric countries. On the other hand, for asymmetric countries, according to the total welfare criteria, we notice first that differentiated standards with transfers are generally better than uniform standards with transfers. Secondly, differentiated standards without transfers always outperform uniform standards without transfers. Last, the numerical results show that the asymmetry on abatement benefits between the countries makes the uniform regime with imperfect transfers better than the differentiated regime without transfers, while an asymmetry on abatement costs gives the opposite result. Keywords: Transboundary pollution, cooperative games, bargaining, standards, transfers. JEL: Q50 C71 Date: 2005-02 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:v05014&r=all 937. Does imperfect competition foster capital accumulation in a developing economy Pascal Belan (LEN and EUREQua) Philippe Michel (GREQAM and EUREQua) Bertrand Wigniolle (EUREQua) We analyze the relationship between imperfect competition and capital accumulation in a dual economy, with traditional and modern sectors and two types of agents (workers and capitalists). Workers allocate their time endowment between the two sectors. Capitalists accumulate wealth in the modern sector. The economy is open to capital flows, but capitalists face borrowing constraints. Non-competitive behavior of capitalists results in a rent, which is extracted from the workers and lowers employment in the modern sector. In the long-run, if capitalists are unconstrained, imperfect competition is beneficial for capital accumulation and growth, while it is detrimental in the converse case. Moreover, not-binding borrowing constraints lead to higher employment and wages. This can motivate the introduction of a subsidy on bequests that allows the economy to reach the unconstrained regime, and is welfare-enhancing for workers. Keywords: Imperfect competition, capital accumulation, altruism. JEL: D43 D9 D64 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:mse:wpsorb:v05026&r=all 938. A Model for Selection of Suitable Payment Methods for E- Government Krabichler, Thomas Breitschaft, Markus Stahl, Ernst Wittmann, Georg Um den Wirtschaftlichkeitsanforderungen an E-Government- Dienstleistungen gerecht zu werden, werden geeignete Zahlungsverfahren benotigt, die die effiziente und sichere Vereinnahmung von Erlosen und Gebuhren ermoglichen. Anbieter von Online-Transaktionen sehen sich dabei einer unuberschaubaren Vielfalt verschiedener Zahlungsverfahren gegenuber, die von der klassischen Uberweisung bis zu Mobiltelefon-basierten Zahlungsverfahren reicht. Auf Grundlage eines Anforderungskatalogs zur Auswahl elektronischer Zahlungsverfahren wird im Rahmen dieses Beitrags ein Vorgehensmodell fur die Auswahl elektronischer Zahlungsverfahren fur E Government- Dienstleistungen entwickelt, das die Beziehungen zwischen den einzelnen Anforderungen, die Notwendigkeit der Abwagung zwischen den Anforderungen sowie die Moglichkeit zur Kombination von Zahlungsverfahren berucksichtigt. Keywords: E-Payment, E-Government Date: 2005-04-11 URL: http://d.repec.org/n?u=RePEc:bay:rdwiwi:491&r=all 939. Information Acquisition and the Excess Refund Puzzle Steven A. Matthews (Department of Economics, University of Pennsylvania) Nicola Persico (Department of Economics, University of Pennsylvania) A buyer can learn her value for a returnable experience good by trying it out, with the option of returning the good for whatever refund the seller offers. Sellers tend to offer a “no questions asked” refund for such returns, a money back guarantee. The refund is often too generous, generating inefficiently high levels of returns. We present two versions of a model of a returnable goods market. In the Information Acquisition Model, consumers are ex ante identical and uninformed of their private values for the good. The firm then offers a generous refund in order to induce the consumers to learn their values by purchasing and trying the good out, rather than by doing costly research prior to purchasing. In the Screening Model, some consumers have negligible costs of becoming informed about their values prior to purchasing, and always do so; other consumers have prohibitive costs of acquiring pre-purchase information and always stay uninformed. The firm’s optimal screening menu may then contain only a single contract, one that specifies a generous refund, and hence a high purchase price, in order to weaken the incentive constraint of the informed consumers. Keywords: information acquisition, refunds, money back guarantees, returnable experience goods JEL: L1 Date: 2005-03-28 URL: http://d.repec.org/n?u=RePEc:pen:papers:05-015&r=all 940. Aggregation of Expert Opinions Dino Gerardi (Department of Economics, Yale University) Richard McLean (Department of Economics, Rutgers University) Andrew Postlewaite (Department of Economics, University of Pennsylvania) Conflicts of interest arise between a decision maker and agents who have information pertinent to the problem because of differences in their preferences over outcomes. We show how the decision maker can extract the information by distorting the decisions that will be taken, and show that only slight distortions will be necessary when agents are informationally small. We further show that as the number of informed agents becomes large the necessary distortion goes to zero. We argue that the particular mechanisms analyzed are substantially less demanding informationally than those typically employed in implementation and virtual implementation. In particular, the equilibria we analyze are conditionally dominant strategy in a precise sense. Further, the mechanisms are immune to manipulation by small groups of agents. Keywords: Information aggregation, Asymmetric information, Cheap talk, Experts JEL: D7 D8 Date: 2005-04-01 URL: http://d.repec.org/n?u=RePEc:pen:papers:05-016&r=all 941. Goodness of Fit Tests for Moment Condition Models Joaquim J.S. Ramalho (Department of Economics, University of Evora) Richard J. Smith (Department of Economics, University of Warwick) This paper proposes novel methods for the construction of tests for models specified by unconditional moment restrictions. It exploits the classical-like nature of generalized empirical likelihood (GEL) to define Pearson-type statistics for over- identifying moment conditions and parametric constraints based on constrasts of GEL implied probabilities which are natural by- products of GEL estimation. As is increasingly recognized, GEL can possess both theoretical and empirical advantages over the more standard generalized method of moments (GMM). Monte Carlo evidence comparing GMM, GEL and Pearsontype statistics for over- identifying moment conditions indicates that the size properties of a particular Pearson-type statistic is competitive in most and an improvement over other statistics in many circumstances. Keywords: GMM, Generalized Empirical Likelihood, Overidentifying Moments, Parametric Restrictions, Pearson-Type Tests JEL: C13 C30 Date: 2005 URL: http://d.repec.org/n?u=RePEc:evo:wpecon:5_2005&r=all 942. Empirical Likelihood Estimation under Alternative Stratified Sampling Schemes when Aggregate Data are Available Joaquim J.S. Ramalho (Department of Economics, University of Evora) Esmeralda A. Ramalho (Department of Economics, University of Evora) Empirical likelihood (EL) is appropriate to estimate moment condition models when a random sample from the target population is available. However, many economic surveys are subject to some form of stratification, with different subsets of the underlying population of interest being sampled with different frequencies. In this setting, the available data provide a related but distorted picture of the features of the target population and direct application of EL will produce inconsistent estimators. In this paper we propose some adaptations to EL to deal with stratified samples in models defined by unconditional moment restrictions. We develop two distinct modified EL estimators: the weighted EL estimator, which requires knowledge on the marginal strata probabilities; and the two-step EL estimator, which assumes the availability of some auxiliary aggregate information on the target population. A Monte Carlo simulation study reveals promising results both for the weighted and some versions of the two-step EL estimators. Keywords: Stratified Sampling, Empirical Likelihood, Weighted Estimation, Auxiliary Information JEL: C13 C30 Date: 2005 URL: http://d.repec.org/n?u=RePEc:evo:wpecon:6_2005&r=all 943. L’evolution de la mobilite scolaire intergenerationnelle au Perou depuis un siecle Laure Pasquier-Doumer (DIAL, IEP-Paris) Gerardo David Rosas Shady (Inter American Development Bank, University of Paris 1 Pantheon-Sorbonne, DIAL) (English) The Peruvian society is characterized by a highly unequal income distribution. But, is it also an unfair society in accordance with the criterion of equality of opportunities? Several studies have shown that social origin does not necessarily have a decreasing effect during the life cycle. For example, social origin can continue to influence the professional career even after it has exerted an influence on education and the first job. This paper tries to answer this question by analysing the effect of social origin on occupational mobility in Peru. It describes occupational mobility in Peru as a useful instrument to understand the dynamics of the Peruvian labor market and shows the importance and complexity of this mobility. Finally, it attempts to explain to what extent social background affects occupational mobility after controlling for its effect on the prior stages of the life cycle. _________________________________ (francais) La societe peruvienne, caracterisee par une repartition tres inegalitaire des revenus, est-elle egalement une societe injuste au regard du critere d’egalite des chances ? L’article cherche des elements de reponse a cette question en s’interrogeant sur le role de l’origine sociale sur la mobilite occupationnelle des individus au cours de 5 ans de carriere. En effet, differents travaux suggerent que l’origine sociale n’a pas un effet forcement decroissant au cours du cycle de vie et qu’elle peut continuer a influencer le deroulement de la carriere professionnelle, meme apres qu’elle ait exerce une influence sur l’education et le premier emploi. L’article decrit tout d’abord la mobilite occupationnelle au Perou en tant qu’instrument utile pour comprendre la dynamique du marche du travail peruvien et met en avant l’importance de cette mobilite et sa complexite. Ensuite, il cherche a tester si l’origine sociale est determinante dans l’evolution de la carriere, meme apres avoir controle ses effets sur les etapes anterieures du cycle de vie. Keywords: : Occupational mobility, equality of opportunities, Peru, Bivariate probit model, Mobilite occupationnelle, egalite d’opportunites, Perou, probit bivarie. JEL: J62 D63 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:dia:wpaper:dt200504&r=all 944. The Relationship between Educational Expenditures and Outcomes Francois Leclercq (DIAL, Universite Paris 1, UNESCO) (english) This paper presents a survey of the large empirical literature in economics that has sought to examine the relationship between educational expenditures and outcomes in both developed and developing countries. The main feature of this literature is the remarkable lack of consensus about the results of standard studies using the ‘education production function’ conceptual framework, whether at the macro or at the micro level. Experimental evidence that has recently started to accumulate may provide more reliable guidance to policy interventions aimed to improve attainment and achievement. Another strand of literature is emphasizing the incentives structure of the school systems, which affects the way in which available school resources are combined to ‘produce’ outcomes. However, the ability of economists to adequately model the functioning of schools could be further enhanced by making use of insights from other social sciences, e.g. social psychology and sociology, pertaining to the behavior of teachers and students. Although they remain quite marginal to the field, recent behavioral economics papers may provide a basis for such a renewal of the economics of education. _________________________________ (francais) Cet article presente une synthese critique des travaux consacres par les economistes de l’education a la relation entre depenses d’education et resultats scolaires. Qu’ils portent sur les pays developpes ou les pays en developpement, et qu’ils utilisent des donnees agregees au niveau des pays ou des donnees individuelles, les travaux utilisant le cadre conceptuel standard – la « fonction de production educative » – n’ont pas etabli de regularite empirique incontestable. L’approche dite « experimentale » utilisee dans quelques travaux recents pourrait offrir des resultats plus robustes quant a l’impact de politiques educatives specifiques sur le nombre d’annees d’etudes et le niveau de connaissances atteints par les eleves. Un nouvel ensemble de travaux s’interesse desormais aux incitations donnees aux enseignants par les systemes scolaires, qui determinent la facon dont les ressources a la disposition des ecoles sont utilisees pour « produire » des resultats scolaires. Cependant, la capacite des economistes a modeliser de facon adequate le fonctionnement des ecoles pourrait etre amelioree par la prise en compte de concepts empruntes a d’autres sciences sociales, comme la psychologie sociale ou la sociologie ; bien qu’ils restent rares et soient encore peu cites, quelques articles recents d’economie « comportementale » pourraient conduire a un tel renouveau de l’economie de l’education. Keywords: Economics of education, education production function, randomized experiments, natural experiments, school resources, school incentives, teachers, Economie de l’education, fonction de production educative, experiences aleatoires, experiences naturelles, ressources des ecoles, incitations, professeurs. JEL: H52 I2 Date: 2005-04 URL: http://d.repec.org/n?u=RePEc:dia:wpaper:dt200505&r=all 945. Efectos del Salario Minimo en el Mercado Laboral Peruano Nikita R. Cespedes Reynaga (Central Bank of Peru) El estudio muestra evidencias del impacto del Salario Minimo ( RMV) en el mercado laboral peruano. Se utiliza un modelo dinamico de datos panel por sectores economicos de la ecuacion de empleo y se estima que existe una relacion negativa entre el empleo formal y la RMV. La elasticidad empleo-RMV es aproximadamente -0,13. Esta evidencia se complementa al estimar que la probabilidad de mantenerse ocupado, en un contexto en el cual se produjo un incremento legal de la RMV, es menor entre aquellos individuos que perciben ingresos cercanos a la RMV (y entre jovenes). Se reporta evidencia que sustenta la hipotesis de que la RMV es un referente en la determinacion de remuneraciones en el sector formal. Asimismo, se encuentra evidencias sobre los efectos distributivos de un incremento de la RMV a favor de los trabajadores de bajos ingresos. Keywords: Salario Minimo, Regulacion Laboral, Demanda de Trabajo. JEL: J23 J31 J38 Date: 2005-02 URL: http://d.repec.org/n?u=RePEc:rbp:wpaper:2005-003&r=all 946. Usando informacion adicional en la estimacion de la brecha producto en el Peru: una aproximacion multivariada de componentes no observados Gonzalo Llosa (Central Bank of Peru) Shirley Miller (Central Bank of Peru) Uno de los elementos claves para el regimen de metas de inflacion es la correcta identificacion de las presiones inflacionarias y deflacionarias a traves de la brecha producto. En este trabajo brindamos una estimacion de la brecha producto para la economia peruana utilizando un modelo multivariado de componentes no observados (MUC), el cual se basa en una relacion explicita de corto plazo entre la inflacion y la brecha producto (Curva de Phillips) y restricciones estructurales sobre la dinamica del producto. Los resultados muestran que el estimado MUC de la brecha producto es menos sensible al problema de fin de muestra y exhibe una dinamica mas cercana al proceso de inflacion que las brechas estimadas a partir de metodologias estandares. Keywords: Brecha producto, Inflacion, Modelo de componentes no observados JEL: E32 E31 C51 C52 Date: 2005-02 URL: http://d.repec.org/n?u=RePEc:rbp:wpaper:2005-004&r=all 947. Crisis de Inflacion y Productividad Total de los Factores en Latinoamerica Nelson Ramirez-Rondan (Central Bank of Peru) Juan Carlos Aquino (Pontificia Universidad Catolica del Peru) En este trabajo se analizan los efectos de largo plazo de periodos de crisis de inflacion sobre el crecimiento de la Productividad Total de los Factores (PTF) para 18 paises de Latinoamerica durante el periodo de 1961 al 2000, utilizando la metodologia de estimacion de Metodo Generalizado de Momentos ( GMM) en un modelo de datos de panel dinamico. Los resultados muestran efectos no lineales de la inflacion sobre el crecimiento de la PTF, en el sentido de que periodos de altos niveles de inflacion han tenido efectos negativos sobre el crecimiento la productividad (consistente con los modelos de crecimiento endogeno), mientras que periodos de bajos niveles de inflacion parecen no tener efectos permanentes (tal como predice la teoria monetaria).Tambien, encontramos efectos negativos de la volatilidad de la inflacion sobre el crecimiento de la productividad. Cabe mencionar que estos resultados son robustos a una serie de variables de control, como por ejemplo choques de oferta, apertura comercial y carga del gobierno. Keywords: Inflacion, productividad total de los factores, datos de panel dinamico JEL: C23 E31 O54 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:rbp:wpaper:2005-005&r=all 948. The Nonlinear Skeletons in the Closet William Barnett (Department of Economics, The University of Kansas) Barry E. Jones (State University of New York at Binghamton) Milka Kirova (Washington University) Travis D. Nesmith (Board of Governors of the Federal Reserve System) Meenakshi Pasupathy1 (Bernard Baruch School - CUNY) Date: 2004-05 Date: 2004-05 URL: http://d.repec.org/n?u=RePEc:kan:wpaper:200403&r=all 949. On user costs of risy monetary assets William Barnett (Department of Economics, The University of Kansas) Shu Wu (Department of Economics, The University of Kansas) We extend the monetary-asset user-cost risk adjustment of Barnett, Liu, and Jensen (1997) and their risk-adjusted Divisia monetary aggregates to the case of multiple non-monetary assets and intertemporal non-separability. Our model can generate potentially larger and more accurate CCAPM user-cost risk adjustments than those found in Barnett, Liu, and Jensen (1997). We show that the risk adjustment to a monetary asset??s user cost can be measured easily by its beta. We show that any risky nonmonetary asset can be used as the benchmark asset, if its rate of return is adjusted in accordance with our formula. These extensions could be especially useful, when own rates of return are subject to exchange rate risk, as in Barnett (2003). Keywords: User costs, Monetary Aggregation, Risk, Pricing kernel, CAPM JEL: E41 G12 C43 C22 Date: 2004-06 Date: 2004-06 URL: http://d.repec.org/n?u=RePEc:kan:wpaper:200404&r=all 950. Coalitional Manipulation on Networks Biung-Ghi Ju (Department of Economics, The University of Kansas) We consider an abstract model of division problems where each agent is identi- fied by a characteristic vector. Agents are situated on a network (a non-directed graph) and any connected coalition can reallocate members?? characteristics (e.g. reallocation of claims in bankruptcy problems). A reallocation- proof rule prevents any coalition from benefiting, in terms of its total award, through a reallocation. We offer a full characterization of reallocation-proof rules without any assumption on the network structure. This result yields a variety of useful corollaries for specific networks such as the complete network, trees, networks without a ?°bridge?± etc. Our model has various special examples such as bankruptcy, surplus sharing, cost sharing, income redistribution, social choice with transferable utility, etc. Keywords: Division problem; Coalitional manipulation; Network; Graph; Reallocationproofness JEL: C71 D30 D63 D71 Date: 2004-08 Date: 2004-08 URL: http://d.repec.org/n?u=RePEc:kan:wpaper:200410&r=all 951. Gains from Synchronization William Barnett (Department of Economics, The University of Kansas) (Department of Economics, The University of Kansas) This paper investigates the transmission mechanisms of noise and volatility between economies through trade links, and the effects of synchronization on business cycles. We investigate the transmission of outside noise and the fluctuations that the noise generates. We identify conditions under which international economic links reduce the economic output noise emanating from noise within the individual economies. Under certain conditions, devaluation of a country's currency causes reduction in the business cycle noise and volatility as seen by that country's exporters, while increased valuation of a country's currency produces higher noise and volatility, as seen by the country's importers. Keywords: business cycles, synchronization, international trade, stochastic systems JEL: D5 D9 E Date: 2005-04 Date: 2005-04 URL: http://d.repec.org/n?u=RePEc:kan:wpaper:200511&r=all 952. Endogenous Market Thickness, Prices and Honesty: Quality Demand Traps. Bandyopadhyay, Siddhartha. We study the interaction between product quality, prices and demand in a dynamic model of asymmetric information. Sellers choose between producing high quality goods which gives low profits today but increases probability of future survival in the market and low quality ones which gives higher returns today but lowers future survival. However, demand depends on expected quality. Multiple steady states (high demand high quality, low demand low quality) exist if the present discounted value of lifetime profits from selling high quality goods exceeds a certain cutoff. We also characterise the equilibrium price which depends on the distribution of buyer valuations. Keywords: market thickness, endogenous quality, multiple equilibria, price mechanism JEL: L14 L15 O12 O17 Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:bir:birmec:05-02&r=all 953. Foreign Exchange Interventions Under Inflation Targeting: The Czech Experience Tomas Holub This paper discusses the role of foreign exchange interventions in the inflation-targeting regime, focusing on the Czech experience since 1998. It proposes criteria for assessing whether the interventions are consistent with the inflation targeting. While the CNB’s interventions in mid- 1998 and in 2002 pass these criteria easily, the judgement might be more uncertain concerning the interventions in early-1998 and in 1999/2000. It is also stressed that the literature on managed floating usually ignores the difficulty in defining clear procedural rules for the interventions. This contrasts with the procedures guiding the interest rate decisions under the inflation targeting regime, which may occasionally create tensions in the policy regime, as demonstrated by the Czech experience, too. The interventions’ effectiveness in the Czech Republic is also discussed. It seems that sometimes they might have had an immediate impact lasting up to 2 or 3 months, but no strategy can be identified that would work in all episodes. Moreover, even many of the “successful” interventions were not able to prevent quite prolonged periods of exchange rate overvaluation in 1998 and in 2002. It is concluded that the signalling role of foreign exchange interventions is more important than their “market-equilibrating effect”, implying a rather unstable transmission between the central bank actions and the market reactions. Finally, the paper analyses the sterilisation costs, which are shown to have been quite substantial in the Czech Republic. It is argued that the financial sustainability of the interventions is quite important for their credibility and effectiveness. Keywords: Exchange rate, foreign exchange interventions, inflation targeting, sterilisation. JEL: E42 E44 E52 E58 E65 F31 Date: 2004-01 URL: http://d.repec.org/n?u=RePEc:cnb:rpnrpn:2004/01&r=all 954. Stress Testing: A Review of key Concepts Martin Cihak The note is a review of the literature on the quantitative methods used to assess the vulnerabilities of financial systems to risks. In particular, the author focuses on the role of system- wide stress testing. He summarizes the recent developments in the literature, highlighting topics relevant for the Czech case. He presents the key concepts relating to systemwide stress tests, overviews the stress tests performed by central banks and international financial institutions, and discusses conceptual issues relating to modeling of individual risk factors. Keywords: Financial soundness, macroprudential analysis, stress tests. JEL: G21 G28 E44 Date: 2004-04 URL: http://d.repec.org/n?u=RePEc:cnb:rpnrpn:2004/02&r=all 955. Designing Stress Tests for the Czech Banking System Martin Cihak The note discusses key issues involved in designing a suitable set of stress tests for the Czech banking system. The aim of the note is to propose stress tests that could be used by the Czech National Bank on a regular basis to assess the soundness of domestic banks, both for purposes of macroprudential surveillance and for banking supervision. The author suggests that the exercise be broadly based on the stress tests conducted during the 2001 IMF-World Bank Financial Sector Assessment Program (FSAP) mission to the Czech Republic. He summarizes the FSAP stress tests, and proposes a number of extensions and modifications. The key recommendations are presented in a table that covers also data requirements and a suggested timeframe for implementation. The note includes results of a replication of the Czech FSAP stress tests for mid-2003 data. Keywords: Banking system, stress tests. JEL: G21 G28 E44 Date: 2004-04 URL: http://d.repec.org/n?u=RePEc:cnb:rpnrpn:2004/03&r=all 956. External and Fiscal Sustainability of the Czech Economy: A Quick Look Through the IMF’s Night-Vision Goggles Ales Bulir The paper presents the rationale for spreadsheet-based debt sustainability assessments. Policymakers can use these exercises in two ways. First, assessments of possible debt developments provide “reality checks” of macroeconomic projections. Second, the financial stability exercise may indicate vulnerability to crises. Empirically, using the IMF debt sustainability template, the paper finds that the external position of the Czech Republic appears sustainable under most plausible history-based scenarios. However, a deep, two-year recession coupled with fiscal indiscipline might double the 2002 stock of foreign debt by the end of the decade. The fiscal position is significantly more fragile and the fiscal debt-to-GDP ratio quickly approaches 60 percent under some of the more pronounced shocks. Keywords: Debt sustainability, Macroeconomic projections, Vulnerability. JEL: F34 H63 Date: 2004-12 URL: http://d.repec.org/n?u=RePEc:cnb:rpnrpn:2004/04&r=all 957. The CNB’s Policy Decisions – Are They Priced in by the Markets? David Navratil Viktor Kotlan This paper asks to what extent the market prices in the future monetary policy decisions of the Czech National Bank (CNB), how this policy predictability has evolved over time, and whether the change in the central bank’s forecasting methodology in mid- 2002 had any impact. Using a sample up to mid-2004, the results are threefold. First, three-quarters of the CNB’s decisions were in line with medium-term money market expectations. Notwithstanding this relatively high predictability of CNB policy, the average mistake in the expectations was biased upwards: over the entire IT period the market has priced in a higher repo rate than has actually turned out to be the case. Second, our analysis shows that the period in which forecasts with an active monetary policy (unconditional forecasts) have been used is characterized by smaller “surprises” of the money market. On the one hand, this may be connected with a change in the CNB’s communication of the forecast, including releases of verbal comments on the interest rate trajectory that is consistent with the outlook. On the other hand, it may reflect a different economic environment in the second stage of IT in the Czech Republic. Third, we analyze whether there is convergence or divergence between the central bank’s forecast-consistent interest rate trajectory and market forward rates. We show that in most cases market rates converged toward the CNB’s interest rate trajectory after the publication of the forecast. Keywords: Financial market reaction, inflation targeting, monetary policy predictability, term structure of interest rates. JEL: E43 E44 E52 Date: 2005-02 URL: http://d.repec.org/n?u=RePEc:cnb:rpnrpn:2005/01&r=all 958. Determining Factors of the Czech Foreign Trade Balance; Structural Issues in Trade Creation VladimA­r BenA?Aek Ladislav Prokop Jan A. VA­A?ek Using panel data for 29 industries, we test alternative specifications of Czech export and import functions. The balance of trade is primarily influenced by the real exchange rate, aggregate demand and tariff changes. Reduced growth of the Czech economy after 1996 was an important factor that has kept the balance of trade at a sustainable level in the medium-term, contributing even to the appreciation of the real exchange rate. The secondary fundamental factors, relevant for structural adjustments, a sustainable trade balance and an equilibrium exchange rate, rest, however, on supply-side characteristics such as changes in endowments of physical and human capital, inflows of FDI and growing competitiveness of domestic production. We can argue that appreciation of the real exchange rate is a handicap to Czech exports, especially to exports to non-EU countries. Nevertheless, in the EU case, the appreciation of koruna was countervailed by tariff concessions, improved quality, switchover to commodities with higher contents of value added, gains associated with FDI and growing foreign demand absorption. At the same time, appreciation of the real exchange rate has significantly opened the Czech market to imports but the unconstrained import penetration remained blocked by the growing competitiveness of Czech products in costs, prices and quality. Keywords: export and import specialisation; international trade; panel data estimation; production factor intensities; sectoral trade balance. JEL: C23 F14 F32 Date: 2003-06 URL: http://d.repec.org/n?u=RePEc:cnb:wpaper:2003/03&r=all 959. Components of the Czech Koruna Risk Premium in a Multiple- Dealer FX Market Alexis Derviz The paper proposes a continuous time model of an FX market organized as a multiple dealership. The model reflects a number of salient features of the Czech koruna spot market. The dealers have costly access to the best available quotes. They interpret signals from the joint dealer-customer order flow and decide upon their own quotes and trades in the inter-dealer market. Each dealer uses the observed order flow to improve the subjective estimates of the relevant aggregate variables, which are the sources of uncertainty. One of the risk factors is the size of the cross-border dealer transactions in the FX market. These uncertainties have diffusion form and are dealt with according to the principles of portfolio optimization in continuous time. The model is used to explain the country, or risk, premium in the uncovered national return parity equation for the koruna/euro exchange rate. The two country premium terms that I identify in excess of the usual covariance term (a consequence of the aˆ?Jensen inequality effectaˆ) are the dealer heterogeneity-induced inter-dealer market order flow component and the dealer Bayesian learning component. As a result, a aˆ?dealer-based total return parityaˆ formula links the exchange rate to both the aˆ?fundamentalaˆ factors represented by the differential of the national asset returns, and the microstructural factors represented by heterogeneous dealer knowledge of the aggregate order flow and the fundamentals. Evidence on the cross-border order flow dependence of the Czech koruna risk premium, in accordance with the model prediction, is documented. Keywords: Bayesian learning, FX microstructure, optimizing dealer, uncovered parity. JEL: F31 G11 G29 D49 D82 Date: 2003-06 URL: http://d.repec.org/n?u=RePEc:cnb:wpaper:2003/04&r=all 960. Some Exchange Rates Are More Stable than Others; Short-Run Evidence from Transition Countries AleA? BulA­A™ The paper investigates empirically the endogenous liquidity nexus of exchange rate determination on a sample of four transition economies. We find evidence in favor of the hypothesis of a nonlinear error correction process vis-a-vis longer-term trend deviations. The results suggest that early and successful exchange-rate market and financial-account liberalization pays off in terms of depth of the market and, hence, faster adjustment of national currencies to short-term shocks to the exchange rate. Keywords: Exchange rate, endogenous liquidity, error-correction mechanism, nonlinearity. JEL: F31 F33 C32 Date: 2003-06 URL: http://d.repec.org/n?u=RePEc:cnb:wpaper:2003/05&r=all 961. FOREX Microstructure, Invisible Price Determinants, and the Central Bankaˆ™s Understanding of Exchange Rate Formation Alexis Derviz The paper investigates the transmission of macroeconomic factors into the price-setting behavior of a specific dealer in the FX market. This problem is viewed from the perspective of a central banker who observes the price evolution but does not make the market in the home currency. The central bankeraˆ™s task is to explain the forex behavior in terms of conventional economic logic. The analysis is based on a model of a multiple dealer market under two organizations - direct inter-dealer and brokered. The model is constructed in such a way as to reflect the most prominent features of the market for the Czech koruna and, accordingly, to address some issues of key relevance to the Czech National Bankaˆ™s exchange rate policy. We show that the totality of the exchange rate-relevant fundamental factors influence the market makeraˆ™s behavior through a single sufficient statistic, his aˆ?marginalaˆ valuation of foreign currency holdings. Under the two studied trading mechanisms, the marginal valuations across market participants determine the equilibrium exchange rate by means of different trade patterns. Specifically, the brokered market is inferior to the direct one in terms of welfare improvement through trade. It takes a higher inter-dealer trade volume in the brokered market to absorb a new price impulse. Therefore, the central banker would do best by monitoring the brokered segment (as the only partially transparent one available), but by conducting interventions in the direct segment, where the desired impact is easier to achieve. Keywords: forex microstructure, multiple dealership, order flow, pricing schedule. JEL: F31 G15 C72 Date: 2003-06 URL: http://d.repec.org/n?u=RePEc:cnb:wpaper:2003/06&r=all 962. Czech Fiscal Policy: Introductory Analysis VladimA­r BezdA›k Kamil Dybczak AleA? Krejdl What is the size of quasi-fiscal operations and their impact on the overall fiscal balance and public debt in the Czech Republic? Is the recent increase in Czech fiscal deficits fully attributable to the business cycle, or are there non-cyclical factors in place? And last but not least, what are the long-term perspectives of the fiscal system given the size and speed of the expected population ageing process? These are the issues dealt with in the paper. Our results, although being surrounded by some margin of uncertainty, are quite cautionary. The transparency of the fiscal accounts seems to be insufficient and the size of off- budget operations is not negligible. Moreover, we have been witnessing a rapid increase in the cyclically-adjusted deficits, and Czech fiscal policy exhibits mainly pro-cyclical features. Looking into the more distant future reveals that our current fiscal system is extremely vulnerable to demographic pressures, even by international comparison. We argue that the fiscal authorities should increase the overall transparency of the fiscal accounts, mitigate the pro-cyclical characteristics of fiscal policy and make the whole fiscal system more resistant to the expected demographic pressures. Keywords: ageing populations, cyclically-adjusted balance, fiscal policy, fiscal stance, offbudget transactions, quasi-fiscal policy. JEL: E62 H11 H5 H6 H81 Date: 2003-11 URL: http://d.repec.org/n?u=RePEc:cnb:wpaper:2003/07&r=all 963. Price Convergence: What Can the Balassaaˆ“Samuelson Model Tell Us? TomA?A? Holub Martin A?ihA?k The paper provides a theoretical reference point for discussions on adjustments in price levels and relative prices. The authors present a aˆ?nestedaˆ model integrating the Balassaaˆ“Samuelson model of the real equilibrium exchange rate with a model of accumulation of capital and with the demand side of the economy. Consequently, they show how the model can be generalised to a case of numerous commodities with different degrees of tradability. The predictions of the model are generally consistent with empirical findings for Central and Eastern European countries. The authors show how the theoretical model can be used for internally consistent simulations of the future convergence process in a transition economy. Keywords: Balassaaˆ“Samuelson model, inflation, relative prices. JEL: E31 E52 E58 F15 P22 Date: 2003-12 URL: http://d.repec.org/n?u=RePEc:cnb:wpaper:2003/08&r=all 964. Credit Risk, Systemic Uncertainties and Economic Capital Requirements for an Artificial Bank Loan Portfolio Alexis Derviz Narcisa KadlAA?kovA? Lucie KobzovA? This paper analyses the impact of different credit risk-based capital requirement implementations on banksaˆ™ need for capital. The capital requirements for an artificially constructed risky loan portfolio are calculated by applying the BIS approach, the two widespread commercial risk-measurement models, CreditMetrics and CreditRisk+, and, finally, an original synthetic model similar to KMV. In the first three cases we closely follow the methodologies proposed by the regulatory or credit risk models. Economic capital requirements for the latter are obtained by means of Monte Carlo simulations. In the context of CreditMetrics, we additionally perform a Monte Carlo-based stress testing of the monetary policy changes reflected in the term structure of interest rates. Our model of KMV type combines the elements of the structural and the reduced-form methods of risky debt pricing, and the possibilities of its numerical solution are outlined. Keywords: credit risk, economic capital, market risk, New Basel Capital Accord, systemic uncertainty. JEL: G21 G28 G33 Date: 2003-12 URL: http://d.repec.org/n?u=RePEc:cnb:wpaper:2003/09&r=all 965. Optimum Currency Area Indices aˆ“ How Close is the Czech Republic to the Eurozone? LuboA? KomA?rek ZdenA›k A?ech Roman HorvA?th In this paper we provide a survey of the optimum currency area theory, estimate the degree of the explanatory power of the optimum currency area criteria, and also calculate the optimum currency area index in the case of the Czech Republic. The results indicate that the traditional optimum currency area criteria to certain extent explain exchange rate variability. Our results may be interpreted as an attempt to assess the benefit- cost ratio of implementing a common currency for a pair of countries. Our results also suggest that from the point of view of the optimum currency area theory the costs of adopting the euro for the Czech Republic may be relatively low, at least in comparison with other EMU member countries. We conclude that if the European Monetary Union is sustainable, the accession of the Czech Republic should not change it. Keywords: Convergence, EU/eurozone, exchange rate, optimum currency area theory, transition. JEL: E58 E52 F42 F33 Date: 2003-12 URL: http://d.repec.org/n?u=RePEc:cnb:wpaper:2003/10&r=all 966. ERM II Membership aˆ“ the View of the Accession Countries LuboA? KomA?rek ZdenA›k A?ech, Roman HorvA?th With EU accession looming, a new chapter has been opened in the debate about the candidate countriesaˆ™ exchange rate strategies. A heated discussion has arisen in relation to ERM2 membership. The experience of the present eurozone members with ERM/ERM2 membership shows that none of them faced a significant challenge in the two-year aˆ?evaluationaˆ period in terms of the exchange rate stability convergence criterion. This could also be attributable to the stability policies prescribed by the Maastricht Treaty. However, for catching-up countries in the run- up to joining the eurozone, given the existing functioning of the mechanism, the ERM2 appears be of little help for ensuring exchange rate stability. The mechanism should be viewed rather as a tool for aˆ?persuadingaˆ the markets of the appropriateness of the euro-locking rate. Since the Maastricht rules do not allow downward adjustment of the central parity within the ERM2 for two years before introduction of the euro, the authorities should be familiar with the preferred real exchange rate path prior to entering the mechanism. We conclude that countries could face large costs if they fail to do so. Keywords: EU/eurozone, convergence, exchange rate, transition. JEL: E58 E52 E32 F42 F33 Date: 2003-12 URL: http://d.repec.org/n?u=RePEc:cnb:wpaper:2003/11&r=all 967. Modelling the Second-Round Effects of Supply-Side Shocks on Inflation Tibor HlA©dik Since the introduction of inflation targeting in the Czech Republic in 1998, supply-side factors have had a strong direct influence on CPI inflation on several occasions. This paper uses a small-scale dynamic rational expectations model based on an open-economy version of Fuhreraˆ“ Moore-type staggered wage setting to quantify the second-round effects of selected supply- side shocks and of shocks to the nominal exchange rate on wages and subsequently on inflation. In order to analyse the desired reaction of the central bank to these shocks, optimal time- consistent policy rules are derived within the presented New- Keynesian framework. Impulse response analyses are then carried out to demonstrate the modelaˆ™s dynamics under various policy rules corresponding to different loss functions of the central bank. The conclusions presented in the paper suggest that the second-round effects of shocks to import prices and the nominal exchange rate on inflation should not be ignored in practical policy-making. Keywords: monetary policy, optimal policy rules, inflation targeting. JEL: E52 E31 F41 Date: 2003-12 URL: http://d.repec.org/n?u=RePEc:cnb:wpaper:2003/12&r=all 968. Predicting Bank CAMELS and S&P Ratings: The Case of the Czech Republic Alexis Derviz JiA™A­ Podpiera In this paper we investigate the determinants of the movements in the long-term Standard & Poors and CAMELS bank ratings in the Czech Republic during the period when the three biggest banks, representing approximately 60% of the Czech banking sectoraˆ™s total assets, were privatized (i.e., the time span 1998aˆ“2001). The same list of explanatory variables corresponding to the CAMELS rating inputs employed by the Czech National Bankaˆ™s banking sector regulators was examined for both ratings in order to select significant predictors among them. We employed an ordered response logit model to analyze the monthly long-run S&P rating and a panel data framework for the analysis of the quarterly CAMELS rating. The predictors for which we found significant explanatory power are: Capital Adequacy, Credit Spread, the ratio of Total Loans to Total Assets, and the Total Asset Value at Risk. Models based on these predictors exhibited a predictive accuracy of 70%. Additionally, we found that the verified variables satisfactorily predict the S&P rating one month ahead. Keywords: Bank rating, CAMELS, ordered logit model, panel data analysis. JEL: C53 E58 G21 G33 Date: 2004-01 URL: http://d.repec.org/n?u=RePEc:cnb:wpaper:2004/01&r=all 969. EU Enlargement and Endogeneity of some OCA Criteria: Evidence from the CEECs Ian Babetskii There are two opposite points of view on the link between economic integration and business cycle synchronization. De Grauwe (1997) classifies these competing views as aˆ?The European Commission Viewaˆ and aˆ?The Krugman Viewaˆ. According to the European Commission (1990), closer integration leads to less frequent asymmetric shocks and to more synchronized business cycles between countries. On the other hand, for Krugman 1993) closer integration implies higher specialization and, thus, higher risks of idiosyncratic shocks. Drawing on the evidence from a group of transition countries which have experienced a notable increase in trade openness and economic integration with the European Union during the past decade, this paper tries to determine whose argument is supported by the data. This is done by confronting estimated time-varying coefficients of supply and demand shock asymmetry with indicators of trade intensity and exchange rates. We find that (i) an increase in trade intensity leads to higher symmetry of demand shocks; the effect of integration on supply shock asymmetry varies from country to country; (ii) a decrease in exchange rate volatility has a positive effect on demand shock convergence. The results for demand shocks can be interpreted in favor of aˆ?The European Commission Viewaˆ, also known as the endogeneity argument by Frankel and Rose (1998) in the OCA criteria discussion, according to which trade links reduce asymmetries between countries. Overall, our results support Kenenaˆ™s (2001) argument that the impact of trade integration on shock asymmetry depends on the type of shock. Keywords: EU enlargement, business cycle, trade, OCA (optimal currency area) JEL: E32 F30 F42 Date: 2004-03 URL: http://d.repec.org/n?u=RePEc:cnb:wpaper:2004/02&r=all 970. The Role of Banks in the Czech Monetary Policy Transmission Mechanism Anca Pruteanu With this work, we aim to enrich the knowledge about the monetary policy transmission mechanism in the Czech Republic with empirical evidence on the impact of monetary policy on bank lending. Using a panel of quarterly time series for Czech commercial banks for the period 1996aˆ“2001, we study the overall effect of monetary policy changes on the growth rate of loans and the characteristics of the supply of loans. The characterization of the credit marketaˆ™s supply side allows us to make inferences on the operativeness of the credit channel ( the bank lending channel and the broad credit channel) of the monetary transmission mechanism. We find that changes in monetary policy alter the growth rate of loans with considerably stronger magnitude in the period 1999aˆ“2001 than in the period 1996aˆ“1998. From the analysis intended to capture the characteristics of the supply of loans, we conclude that the lending channel was operative in the period 1996aˆ“1998: we find cross-sectional differences in the lending reactions to monetary policy shocks due to degree of capitalization and liquidity. For the subsequent period 1999aˆ“ 2001, the results also show distributive effects of monetary policy due to bank size and a bankaˆ™s proportion of classified loans. In the context of steadily decreasing interest rates, this bolsters the supposition of credit rationing and hence that of an operative broad credit channel. At the same time, we find evidence of linear relationships between bank characteristics and the growth rate of loans, and again these relationships change between the two time periods. This bodes well with the changes in the structure and attitude towards lending of the Czech commercial banks. Keywords: Bank lending channel, broad credit channel, credit rationing, monetary transmission mechanism. JEL: E52 E51 E58 G21 Date: 2004-04 URL: http://d.repec.org/n?u=RePEc:cnb:wpaper:2004/03&r=all 971. Consumers, Consumer Prices and the Czech Business Cycle Identification JiA™A­ Podpiera In this paper we propose an alternative method for deriving the business cycle. We interpret the varying inflationary responses to a constant demand shock in a partial equilibrium model. An above-average inflationary response indicates a boom phase and a below-average response shows an economic slowdown. Our model uses data for prices and household budget shares which are not subject to revisions and are consistent with the inflation measure. Hence, it mitigates the common drawbacks of usually applied techniques, such as real-time data mismeasurement or end-point bias of univariate filters. It follows that the results are altered neither by GDP data revisions, labor share determination and NAIRU estimation and total productivity smoothing, nor by the end- point bias of data filtering. The proposed method is thus preferred to other complementary methods such as GDP series filtering or the production function approach in showing truly the inflation environment. It is applied to the Czech quarterly data during 1994- 2003 and compared to other available business cycle estimates for the Czech economy. Comparing our business cycle estimation method with the production function method, used by the Economic Intelligence Unit and the Czech Ministry of Finance, and the Kalman filter, used by the Czech National Bank, we found the highest correlation between our measure and the Economic Intelligence Unitaˆ™s indicator. Keywords: Business cycle, inflation environment, simultaneous model. JEL: E31 E32 E37 C30 Date: 2004-05 URL: http://d.repec.org/n?u=RePEc:cnb:wpaper:2004/04&r=all 972. Identification and Measurement of Relationships Concerning Inflow of FDI: The Case of the Czech Republic Petr KrA?l The main goal of the paper is to obtain quantitative evidence describing determinants of FDI in the case of the Czech economy in order to empirically support the decision-making process within the Czech National Bank. The paper builds on the recent economic literature and at the same time examines FDI inflows from the perspective of a multinational company. Furthermore, the microeconomic and macroeconomic characteristics of a potential host country which are crucial for multinational companiesaˆ™ investment decisions are examined. Since government investment incentives seem to play a role in attracting foreign direct investors the paper provides some details on the Czech economic environment regarding this issue. To reach those objectives a cointegration analysis and error- correction model is used to identify the most important determinants of FDI inflows in the Czech Republic by developing an econometric model for analytic purposes. The empirical results presented in the paper support the hypothesis that the most significant determinants of FDI inflow into the Czech economy correspond to the theoretically considered and empirically tested factors. The paper, therefore, provides some basis for analysing the character of foreign investment and assessing the role of the government in attracting FDI inflows to the Czech Republic. More specifically, the empirical results suggest that establishing and maintaining macroeconomic stability and external equilibrium, offering a consistent and competitive package of investment incentives and promotion, and an efficient financing infrastructure, public governance regime and social system are the key factors promoting foreign direct investment inflows. Keywords: Determinants, empirical analysis, foreign direct investment, incentives JEL: F21 F23 C22 Date: 2004-06 URL: http://d.repec.org/n?u=RePEc:cnb:wpaper:2004/05&r=all 973. Credit Risk and Bank Lending in the Czech Republic Narcisa KadlAA?kovA? Joerg Keplinger This project undertakes an empirical analysis in credit risk modeling using a data sample representative of bank lending to the Czech corporate sector. A rating system is constructed using a proprietary database (Creditreform) that provides a solvency index for a large number of Czech firms. Several methods for the calibration and validation of a rating system are described and tested in practice. On the basis of a representative portfolio for Czech industries, systemic predictions of regulatory and economic capital are obtained and compared. The methodologies formulated by the latest Consultative Document of the NBCA (April 2003) and by the Credit Metrics and CreditRisk+ models are applied. The main contributions of this project can be briefly summarized as follows, (a) it shows in an applied manner that input data problems in credit risk modeling can be overcome, (b) it sheds light on regulatory issues that are gaining increasing relevance, and (c) it outlines the most important features of two credit risk models. Keywords: Credit Risk, Economic Capital, Exchange Rate Exposure, Rating System. JEL: G21 G28 G23 Date: 2004-06 URL: http://d.repec.org/n?u=RePEc:cnb:wpaper:2004/06&r=all 974. Eigenvalue Decomposition of Time Series with Application to the Czech Business Cycle JaromA­r BeneA? David VA?vra We follow a Beveridge-Nelson like time series decomposition method (into trend, business cycle and irregular components), and examine a stylized model of price inflation determination using the Czech data. We characterize the estimated components of CPI, IPPI and import inflations, together with the real production wage and real output, and survey their basic correlation properties; furthermore we compute structural innovations imposing restrictions on their long-run effects, draw the impulse responses, and test the results by means of bootstrap simulation. We conclude that major room for further refinement of the research is found in two areas, First, from an economistaˆ™s perspective, in the construction of real marginal cost indicators, and second, from a statistiacianaˆ™s perspective, in further investigation of the robustness of the method. Keywords: bootstrap, business cycle, inflation, structural VAR, time series decomposition JEL: C32 E32 Date: 2004-12 URL: http://d.repec.org/n?u=RePEc:cnb:wpaper:2004/08&r=all 975. Beyond Balassa - Samuelson: Real Appreciation in Tradables in Transition Countries Martin Cincibuch Jiri Podpiera Using the simple arbitrage model, we decompose real appreciation in tradables in three Central European countries between the pricing-to-market component (disparity) and the local relative price component (substitution ratio). Appreciation is only partially explained by local relative prices. The rest is absorbed by disparity, depending on the size of the no-arbitrage band. The observed disparity fluctuates in a wider band for differentiated products than for a commodity like goods. Keywords: Purchasing power parity, pricing-to-market, transition, real appreciation, exchange rates JEL: F12 F15 Date: 2004-12 URL: http://d.repec.org/n?u=RePEc:cnb:wpaper:2004/09&r=all 976. Exchange Rates in the New EU Accession Countries: What Have We Learned from the Forerunners AleA? BulA­A™ KateA™ina A mA­dkovA? Estimation and simulation of sustainable real exchange rates in some of the new EU accession countries point to potential difficulties in sustaining the ERM2 regime if entered too soon and with weak policies. According to the estimates, the Czech, Hungarian, and Polish currencies were overvalued in 2003. Simulations, conditional on large-model macroeconomic projections, suggest that under current policies those currencies would be unlikely to stay within the ERM2 stability corridor during 2004- 2010. In-sample simulations for Greece, Portugal, and Spain indicate both a much smaller misalignment of national currencies prior to ERM2, and a more stable path of real exchange rates over the medium term than can be expected for the new accession countries. Keywords: ERM2, Foreign direct investment, Sustainable real exchange rates. JEL: F31 F33 F36 F47 Date: 2004-12 URL: http://d.repec.org/n?u=RePEc:cnb:wpaper:2004/10&r=all 977. Pathways to Innovation in the Global Network Economy: Asian Upgrading Strategies in the Electronics Industry Dieter Ernst (Economics Study Area, East-West Center) This working paper was prepared for the Workshop on 'Transnational High-tech Strategies in a Global World," Institute of Advanced Social and Management Studies, Lancaster, University, United Kingdom, June 2003. Date: 2004-06 URL: http://d.repec.org/n?u=RePEc:ewc:wpaper:wp58&r=all 978. Trade Reforms, Labor Regulations and Labor-Demand Elasticities: Empirical Evidence from India Rana Hasan (Asian Development Bank) Devashish Mitra (Department of Economics, Maxwell School of Citizenship and Public Affairs, Syracuse University) K.V. Ramaswamy (IGIDR) This paper finds a positive impact of trade liberalization on labor-demand elasticities in the Indian manufacturing sector using industry-level data disaggregated by states. These elasticities turn out to be negatively related to protection levels that vary across industries and over time. Furthermore, we find that these elasticities are higher for Indian states with flexible labor regulations where they are also impacted more by trade reforms. Finally, we find that after the reforms, volatility in productivity and output gets translated into larger wage and employment volatility, theoretically a possible consequence of larger labor-demand elasticities. Date: 2003-06 URL: http://d.repec.org/n?u=RePEc:ewc:wpaper:wp59&r=all 979. Poverty and Economic Freedom: Evidence from Cross-Country Data Rana Hasan (Asian Development Bank, Manila, Philippines) M.G. Quibria (Operations Evaluation Department, Asian Development Bank, Manila, Philippines) Yangseon Kim (Visiting Scholar, East-West Center) This paper explores the empirical relationship between poverty and economic freedom. In doing so, it estimates the levels of absolute poverty for a panel of over forty developing countries and then utilizes fixed effects and GMM-IV estimators to derive the empirical relationships. The principal empirical results that emerge from this exercise indicate that important indicators of economic freedom such as openness to trade and small size of the government are robustly associated with poverty reduction. Labor market flexibility, which reflects an important dimension of economic freedom, does not have a significant effect on poverty on average. However, there is some evidence that trade's beneficial impact on poverty has been smaller in economies with more regulated labor markets. Finally, civil liberties that encompass various types of important economic freedom such as poverty rights, rule of law, etc., also contribute significantly to poverty reduction. This result contrasts with that for political liberties, which have seemingly no impact on poverty reduction. All these suggest that economic freedom is as much important for economic growth as for poverty reduction. Date: 2003-09 URL: http://d.repec.org/n?u=RePEc:ewc:wpaper:wp60&r=all 980. Trade and Workers: Evidence from the Philippines Rana Hasan (Asian Development Bank) Lan Chen (Graduate student, University of Hawaii-Manoa) We combine labor force survey data with trade and production data to examine the impact of trade on wages and employment in the Philippines' manufacturing section. Our main finding are as follows. First, in contrast to findings typically reported for Latin American countries, our data indicate that wage inequality in the Philippines' manufacturing sector has declined over the period in which trade liberalization has been undertaken. This is despite the fact that reductions in tariff rates were largest in less skill intensive manufacturing industries. There has also been an absence of any secular rise in returns to higher education. Second, tariff reductions have been associated with declines in industry wage premiums in capital-intensive industries. Moreover, these declines appear to have been largest for skilled workers. Finally, tariff reductions have had an insignificant effect on both employment as well as the average hours of work of full-time employees across industries. These findings are consistent with a scenario where workers in capital- intensive industries, especially the more skilled ones, earned rents prior to trade liberalization; liberalization may have worked to erode these. Date: 2003-09 URL: http://d.repec.org/n?u=RePEc:ewc:wpaper:wp61&r=all 981. Pathways to Innovation in Asia's Leading Electronics Exporting Countries: Drivers and Policy Implications Dieter Ernst (Economics Study Area, East-West Center) This paper was prepared for the Democratic Pacific Assembly 2003 Conference, "Common Future of the 21st Century Pacific," September 18-21, 2003, in Taipei, Taiwan. Date: 2003-11 URL: http://d.repec.org/n?u=RePEc:ewc:wpaper:wp62&r=all 982. Global Production Networks, Innovation, and Work: Why Chip and System Design in the IT Industry are Moving to Asia Dieter Ernst (Economics Study Area, East-West Center) Boy Luethje (Institut fuer Sozialforschung, Universitaet Frankfurt, Germany) This paper was prepared as an issue paper, to be discussed at the Planning Meeting of the SSRC on "Emerging Pathways to Innovation in Asia," September 12-13, 2003. Date: 2003-11 URL: http://d.repec.org/n?u=RePEc:ewc:wpaper:wp63&r=all 983. Internationalisation of Innovation: Why Chip Design Moving to Asia Dieter Ernst (Economics Study Area, East-West Center) This paper will appear in International Journal of Innovation Management, special issue in honor of Keith Pavitt, (Peter Augsdoerfer, Jonathan Sapsed, and James Utterback, guest editors), forthcoming... Date: 2003-11 Date: 2004-03 URL: http://d.repec.org/n?u=RePEc:ewc:wpaper:wp64&r=all 984. Late Innovation Strategies in Asian Electronics Industries: A Conceptual Framework and Illustrative Evidence Dieter Ernst (Economics Study Area, East-West Center) This paper was published in Oxford Development Studies special issue in honor of the late Professor Linsu Kim. Date: 2004-03 URL: http://d.repec.org/n?u=RePEc:ewc:wpaper:wp66&r=all 985. Estimation of the J-Curve in China Jaleel Ahmad (Economics, Massachusetts Institute of Technology, Montreal, Canada) Jing Yang (Economics, Concordia University, Ottawa, Canada) This paper investigates whether a J-curve can be detected in the time series data on China's bilateral trade with the G-7 countries. It utilizes cointegration and causality tests to ascertain the long-run relatedness, and the short-run dynamics, between the real exchange rate, national income, and the trade balance. There is some evidence that a real depreciation eventually improves the trade balance with some countries. But there is no indication of a negative short-run response which characteristics the J-Curve. Date: 2004-03 URL: http://d.repec.org/n?u=RePEc:ewc:wpaper:wp67&r=all 986. Searching for a New Role in East Asian Regionlization: Japanese Production Networks in the Electronics Industry Dieter Ernst (Economics Study Area, East-West Center) This paper will be published in Peter and J. Katzenstein and Takashi Shiraishi, eds. Remaking East Asia: Beyond Americanization and Japanization, Cornell University Press. Date: 2004-03 URL: http://d.repec.org/n?u=RePEc:ewc:wpaper:wp68&r=all 987. The Reasons for and the Impact of Antidumping Protection: The Case of People's Republic of China Tianshu Chu Thomas J. Prusa (Economics Study Area, East-West Center) An earlier draft of this paper was presented at the APEC Capacity-Building Workshop on Quantification of NTMs and Trade Facilitation, October 8-10, 2003, in Bangkok, Thailand. Date: 2004-04 URL: http://d.repec.org/n?u=RePEc:ewc:wpaper:wp69&r=all 988. Impact of Population Aging on Japanese International Travel to 2025 James Mak (Department of Economics, University of Hawaii- Manoa) Lonny Carlile (Asian Studies, University of Hawaii-Manoa) Sally Dai (Research Program, East-West Center) In this paper we forecast Japanese international travel to 2025. In addition, to the usual economic variables, our model also captured both populations again and cohort effects on Japanese travel abroad. We predict the number of future Japanese overseas trips for males and females separately by five-year age groups and in five-year increments. We conclude that the Japanese will continue to travel abroad in increasing numbers but population aging will dramatically slow overall future Japanese overseas travel. While the number of "senior" travelers is predicted to increase sharply, we foresee fewer overseas trips taken by Japanese, especially among women, in the 20s and early 30s age groups. Finally, we examine the responses of the industry and the public sector in Japan to implications of a rapidly aging population on future international travel. Date: 2004-10 URL: http://d.repec.org/n?u=RePEc:ewc:wpaper:wp73&r=all 989. Regional vs. Global Financing Strategies for U.S. MNEs Joseph Daniels (Department of Economics, Marquette University) Walid Hejazi (University of Toronto) Marc von der Ruhr (Department of Economics, Saint Norbert College) Despite declining in 2001, foreign direct investment (FDI) surged during the 1990s. As a result, current levels of FDI flows are triple their 1990 levels. It is well documented in the literature that FDI occurs in large part among countries that are geographically close. It is also well established that the NAFTA had a significant impact on both U.S. FDI flows and hence FDI stocks. In addition, tax policies and tax treaties have been shown to be important drivers of U.S. FDI. The analysis presented in this paper confirms these earlier results. We extend the analysis, however, to show that tax treaties have a significant impact on financing patterns of U.S. MNE activities abroad. Based on these results, we argue that bilateral tax treaties should be an important part of trade agreements between the United States and Latin American partners in anticipation of a Free Trade Agreement of the Americas (FTAA). JEL: F21 F23 H20 URL: http://d.repec.org/n?u=RePEc:mrq:igeawp:0501&r=all 990. The dynamics of inflation and currency substitution in a small open economy Miguel Lebre de Freitas (Departamento de Economia e Gestao Industrial, Universidade de Aveiro) In this paper, we analyse the relationship between money and inflation in a small open economy where domestic and foreign currencies are perfect substitutes as means of payment. It is shown that, if the path of domestic money supply is such that individuals find it optimal to change the currency in which transactions are settled, there will be an adjustment period during which domestic inflation adjusts so as to equalise the foreign inflation rate. In the case of a disinflation program, it is shown that the foreign currency is not necessarily abandoned as means of payment. The results obtained are consistent with both dollarisation hysteresis and reversibility, without requiring the specification of dollarisation costs. Keywords: currency substitution, dollarisation, money-demand and hysteresis JEL: E41 E52 F41 Date: 2003-08 Date: 2003-08 URL: http://d.repec.org/n?u=RePEc:ave:wpaper:022003&r=all 991. EMU and EU Governance Francisco Torres (Departamento de Economia e Gestao Industrial, Universidade de Aveiro) This paper argues that a shift from an intergovernmental form of governance to a supranational regulation form of governance, as is the case of EMU, may not only do away with the efficiencylegitimacy trade-off but also enhance the democratic quality and effectiveness of European governance in the monetary sphere. The emerging role of the European Parliament in enhancing the democratic accountability of decision-making in supranational regulation (monetary policy) may prove quite powerful with respect to avoiding such a trade-off and indeed improving efficiency, transparency and accountability in European governance. It is argued that the democratic accountability of governance in the EU increased very much as the direct result of the making of EMU, that is, of the democratic delegation of executive powers to the ECB by the European Council and the EU Council of Ministers. That democratic accountability has also been substantially enhanced thanks to the emerging (and still evolving) role of the European Parliament as a principal of the European Central Bank (ECB). That new role of the EP materialised because of the change in the nature of delegation, i.e. the initial principal (the Council) delegated to an agent (the ECB) in order for the agent to control its behaviour in regard to monetary policy. That led to a change in the assignment between agents and principals. The new principal (still in the making one could argue) has also allowed for increased participation in and deliberation on the discussions about the conduct of monetary policy by the ECB, contributing in this way to its greater transparency. Keywords: Governance; supranational regulation; monetary policy effectiveness; accountability; delegation; principal- agent relations JEL: E5 Date: 2003-10 Date: 2003-10 URL: http://d.repec.org/n?u=RePEc:ave:wpaper:032003&r=all 992. The simple analytics of information and experimentation in dynamic agency Thomas D. Jeitschko (Department of Economics, Michigan State University) Leonard J. Mirman (Department of Economics, University of Virginia) Egas Salgueiro (Departamento de Economia e Gestao Industrial, Universidade de Aveiro) The dynamics of a stochastic, two–period principal–agent relationship is studied. The agent’s type remains the same over time. Contracts are short term. The principal designs the second contract, taking the information available about the agent after the first period into account. Compared to deterministic environments significant changes emerge: First, fully separating contracts are optimal. Second, the principal has two opposing incentives when designing contracts: the principal ‘experiments, ’ making signals more informative; yet dampens signals, thereby reducing up–front payments. As a result, ‘good’ agents’ targets are ratcheted over time. Keywords: Bayesian learning, Experimentation, Dynamic agency, Ratchet effect, Regulation, Procurement JEL: D8 L5 H57 Date: 2004 URL: http://d.repec.org/n?u=RePEc:ave:wpaper:122004&r=all 993. Conjunctive use of surface water and groundwater with quality considerations Catarina Roseta Palma (ISCTE, Portugal) Deterministic models of conjunctive surface and groundwater management aren’t much more complicated than typical groundwater-only management models under simple assumptions. However, when water quality problems exist, the fact that there are two alternative sources of water gains a new significance, as there is no guarantee that they will be of comparable quality. Thus the benefit from using one unit of surface water may not be the same as that of one unit of groundwater. This paper analyses the implications of considering a conjunctive ground and surface water system where water quality varies according to source, with and without uncertainty in hydrological parameters. Date: 2004-02 URL: http://d.repec.org/n?u=RePEc:ave:wpaper:132004&r=all 994. Favouritism and cartel disruption in first-price auctions Ricardo Goncalves (Departamento de Economia, Gestao e Engenharia Industrial, Universidade de Aveiro) The seller in an auction will generally not be happy to know that a cartel of bidders will take part in that auction. Cartels generate their profits by inducing a final price which is lower ( higher in the case of procurement contracts' auctions) than in a competitive auction. This paper proposes a solution to the problem. By allowing the seller to cheat on the auction rules, and to allocate the good to a given bidder with a predetermined probability (favouritism), we show that when no cartel is active, the auction leads to a lower price than that obtained in a purely competitive auction. However, if a cartel is operative, favouritism generates incentives for the favoured bidder to defect the cartel. This single defection is sufficient to disrupt the cartel. In equilibrium, the seller may choose this probability of cheating so as to obtain the highest possible final auction price, which we show to be a second-best outcome. In other words, this proposed solution to the cartel's existence does not lead to a final auction price as high as that obtained in a competitive auction. Keywords: First-price auctions, collusion, cartels JEL: D44 Date: 2004-04 URL: http://d.repec.org/n?u=RePEc:ave:wpaper:152004&r=all 995. The transmission services in a regional electricity market: evidence from IBELM Vitor Moutinho (Departamento de Economia, Gestao e Engenharia Industrial, Universidade de Aveiro) The paper analyses various proposals for the organisation of regional electricity transmission in terms of the forward and spot market. That they may implicitly assume. We explore some of questions arising in the design of regional transmission systems consisting of different control areas operating in interaction. Elementary notions of variational inequalities constitute the analytical tool used throughout the paper. The discussion is conducted with reference to the nodal and flow gate in regional electricity transmission and European proposals for the organization of cross border electricity trade. Date: 2004-04 URL: http://d.repec.org/n?u=RePEc:ave:wpaper:162004&r=all 996. Organization, Program and Structure: An Analysis of the Chinese Innovation Policy Framework Can Huang Celeste Amorim Joaquim Borges Gouveia (Departamento de Economia, Gestao e Engenharia Industrial, Universidade de Aveiro) Mark Spinoglio Augusto Medina (Sociedade Portuguesa de Inovacao) The paper first identifies the stakeholders involved in the design and implementation of China’s innovation policy and compares them with different government systems in selected Organization for Economic Co-operation and Development (OECD) countries. In order to disclose the relative strength and weaknesses inside China’s innovation policy framework, we proceed to utilize policy practices in the OECD countries as a guideline to examine China's innovation policy in five categories: reform in the public S&T institutions, financial policy, business innovation support structure, human resource policy and legislative actions. Subsequently, several weak components of the Chinese innovation policy framework are identified and two of them are selected for further analysis: education and human resource policy, and protection of Intellectual Property Rights ( IPR). Finally, the paper provides some priorities and possible actions for future innovation policy developments in China. Date: 2004 URL: http://d.repec.org/n?u=RePEc:ave:wpaper:172004&r=all 997. Portugal and the European Convention Francisco Torres (Departamento de Economia, Gestao e Engenharia Industrial, Universidade de Aveiro) Ana Fraga (Law Department, European University Institute) A constant feature of the politics of European integration in Portugal has been the reactive position of negotiators supported by reactive political parties that resist any substantial institutional changes until policy makers at the top political level decide to adapt to the new rules. The fear of being left out of the political core of European integration is sufficient to silence the voicing of the customary resistance to change. Throughout the convention, public opinion was either receptive or indifferent to most proposed changes (and in any case not well informed), helping the politicians at the top to accept them all after a period of fierce resistance to any major institutional changes. Keywords: Portugal, European convention, political reactive adaptation, public debate, undefined integration model Date: 2004 URL: http://d.repec.org/n?u=RePEc:ave:wpaper:182004&r=all 998. The socio-cultural and political-economic causes of corruption: a cross-country analysis Aida Isabel Tavares (Departamento de Economia, Gestao e Engenharia Industrial, Universidade de Aveiro) This paper presents an empirical analysis about the economic- political and socialcultural factors that determine the perceived level corruption on a cross country basis. Regressing the Corruption Perception Index on the culture dimensions proposed by Hofstede and by Schwartz and on the social-economic variables such as the human development index, gini coefficient, openness index and political stability indicator, it is found a significant statistical relationship between cultural variables and perceived corruption as well as for the political and economic variables, of which development seems to be the most important factor. Also the cluster analysis shows that as the level of perceived corruption increases, the level of development and openness of countries decreases and the hierarchic, the collectivism and the conservative cultural characteristics tend to be more significant. Keywords: corruption, culture, cross-countries Date: 2004 URL: http://d.repec.org/n?u=RePEc:ave:wpaper:192004&r=all 999. Acumulacao de capital e crescimento economico em Portugal: 1910-2000 Miguel Lebre de Freitas (Departamento de Economia, Gestao e Engenharia Industrial, Universidade de Aveiro) Neste artigo, procuramos descrever a evolucao do stock de capital fisico em Portugal ao longo do Seculo XX, tendo em conta alguns dos seus determinantes, nomeadamente, a envolvente economica e institucional, a propensao a poupar e os precos relativos. Os calculos efectuados revelam algumas inconsistencias entre as series estatisticas disponiveis. Confrontando a evolucao da dotacao relativa capital- fisico/capital humano em Portugal com a verificada em outros paises da OCDE, argumentamos que, nao obstante na segunda metade do seculo XX Portugal ter registado uma taxa de investimento muito elevada, tal nao tera resultado em acumulacao excessiva de capital. Date: 2004-07 URL: http://d.repec.org/n?u=RePEc:ave:wpaper:202004&r=all 1000. Price Cap Regulation for Iberian Transmission Companies Vitor Moutinho (Departamento de Economia, Gestao e Engenharia Industrial, Universidade de Aveiro) This paper examines whether the constraints themselves are a long-run equilibrium outcome in a competitive environment. We show that Iberian transmission companies and generators can tacitly collude to raise prices to consumers and divide the resulting profits. We also show that price cap regulation does not prevent this behavior and may in fact contribute to it. The mechanism for collusion is that Iberian generators locate their plants so that a capacity-constrained transmission line lies between them and their Iberian consumer market. We show that this constraint-based collusion can be sustained in a static game without any punishment strategies. Keywords: capacity constraints, collusion, price cap regulation JEL: L13 L51 L94 Date: 2004-09 URL: http://d.repec.org/n?u=RePEc:ave:wpaper:212004&r=all 1001. Delivered versus Mill Nonlinear Pricing in Free Entry Markets Silvia Jorge (Departamento de Economia, Gestao e Engenharia Industrial, Universidade de Aveiro) Cesaltina Pires (Departamento de Gestao de Empresas, Universidade de Evora) This paper discusses a model where consumers simultaneously differ according to one unobservable (preference for quality) and one observable characteristic (location). In these circumstances nonlinear prices arise in equilibrium. The main question addressed in this work is whether firms should be allowed to practise different nonlinear prices at each location (delivered nonlinear pricing) or should be forced to set an unique nonlinear contract (mill nonlinear pricing). Assuming that firms can costless relocate, we show that the free entry long-run number of firms may be either smaller, equal, or higher under delivered nonlinear pricing. In addition, we show that delivered nonlinear pricing yields in the long-run higher welfare and, consequently, our results support the view that discriminatory nonlinear pricing should not be prohibited. Keywords: Delivered nonlinear pricing, Mill nonlinear pricing, Asymmetric information, Pricing regulation JEL: D43 L13 D82 Date: 2004-09 URL: http://d.repec.org/n?u=RePEc:ave:wpaper:222004&r=all 1002. The Banking Firm, Competition and Growth: Overview of the Literature Antonio Gomes (Departamento de Economia, Gestao e Engenharia Industrial, Universidade de Aveiro) The existence of a finance-growth nexus has drawn the attention of many economists, from Schumpeter to our days. Up to the seventies, there was no real microeconomic theory of the banking firm. The work of Klein (1971) opened the way for a vast literature on the microeconomics of the banking industry. In formal macroeconomic theory, however, for most of the past decades, the financial sector was greatly ignored. In the presence of perfect markets, as in the traditional Arrow-Debreu model of resource allocation, the financial sector would play no significant role. Developments in the study of the microeconomics of banking, building on the new industrial organization approach and/or on the imperfect information paradigm, have slowly been introduced in macroeconomic theory. Developments in growth theory have also brought new insight into the finance-growth nexus. Recent empirical studies, such as Shaffer (1993), Molyneux et al ( 1996), Bikker and Groenweld (2000), De Bandt and Davis (2000) and Corvoisier and Gropp (2002), have shown that the banking sector in many countries is characterized by imperfect competition, especially in the case of European countries. In the present study, which does not intend to be extensive, we will pay a particular attention to competition in the banking sector and its relevance to the relationship between finance and economic growth. Date: 2004-12 URL: http://d.repec.org/n?u=RePEc:ave:wpaper:232004&r=all 1003. Modelling Small Economy Exports: The Case of Singapore Tilak Abeysinghe (Department of Economics, National University of Singapore) Keen Meng Choy (Department of Economics, National University of Singapore) This paper sheds further light on the debate spearheaded by Riedel (1988) on the specification of a small country export function. The theoretical and empirical analyses in the paper show that while the price-taker assumption cannot be rejected, the export function for Singapore should not be construed as a standard export supply equation. As argued by Kapur (1983) instead, it is an export function with both demand and supply factors playing a role. We arrived at the final model specification by taking into consideration changes in the import content of exports over time. The paper also provides a new methodology for deriving a quarterly series of manufacturing net capital stock. Keywords: price taker, demand constraint, export function, import content, restricted cointegrating space JEL: C32 F14 F41 URL: http://d.repec.org/n?u=RePEc:sca:scaewp:0501&r=all 1004. Medical Savings Accounts in Singapore: How much is adequate? Ngee-Choon Chia (Department of Economics, National University of Singapore) Albert K C Tsui (Department of Economics, National University of Singapore) While many studies have examined the cost-containment aspect of Medical savings accounts (MSA), few have investigated the adequacy of MSA to finance the health care expenditure. This paper estimates the present value of lifetime healthcare expenses PVHE) of the Singaporean male and female elderly upon retirement at age 62. The estimation involves calibrating the stream of future healthcare expenditure; stochastic forecasting of cohort survival probabilities; and discounting the projected lifetime healthcare expenditure. Estimated values of the PVHE under various scenarios are used to assess the adequacy of the government-decreed minimum saving to be maintained in the MSA. Keywords: medical savings accounts, present value of lifetime health care expense, cohort survival probabilities JEL: G00 H51 I18 J11 J14 URL: http://d.repec.org/n?u=RePEc:sca:scaewp:0502&r=all 1005. Reverse Mortgages as Retirement Financing Instrument: An Option for “Asset-rich and Cash-poor” Singaporeans Ngee-Choon Chia (Department of Economics, National University of Singapore) Albert K C Tsui (Department of Economics, National University of Singapore) The unique way of financing housing through the mandatory savings system in Singapore has created a class of “asset-rich and cash-poor” Singaporeans. This paper provides a framework to assess the viability of a reverse mortgage (RM) market so that such instruments may be harnessed as a source of financing retirement income for home owners. Based on different cost of capital, we estimate the probability of loss for both the private supplier and public provider of RMs. The probability of loss is computed by three major components: choice of replacement ratio and property growth rate; forecast of cohort survival probability by joint-life; and generation of yield curves to discount the future cash flows. The stochastic forecast of survival probability is estimated using the Lee-Carter demographic model based on the abridged life tables. The discount factor for future cash flows are generated from stochastic interest rates. Our simulation results indicate that based on the benchmark scenario, RM instruments by private providers are likely to achieve about 50% replacement ratio for the 4-room public housing owners. However, the market may be missing if a replacement ratio of 70% is required. Keywords: incomplete reverse mortgage market, replacement ratio, probability of loss, risk free interest, breakeven annuity URL: http://d.repec.org/n?u=RePEc:sca:scaewp:0503&r=all 1006. Pursuing Green Growth: Some Conflicts and Necessary Conditions for a Pragmatic Environmental Policy Euston Quah (Department of Economics, National University of Singapore) This paper focusses narrowly on three areas of public policy concerning the environment deemed necessary for sustainable economic growth. It has relevance to Asian nations as they continue to demand for higher growth and at the same time keeping environmental degradation in check. The three areas are: (1) the issue of siting environmentally unfriendly but nationally required facilities, otherwise known as the NIMBY syndrome, (2) the waste generation problem, and (3) the need to price green goods. In addition to the above three areas for public policy, the paper also discusses a number of pragmatic principles for use in environmental management. Such things as cost-benefit analysis and project appraisal; the pursuit of clean and advanced technologies and inherent conflicts; exploring market solutions; understanding multiple stakeholders; and last but not least the need to establish data baselines for environmental quantity and quality. URL: http://d.repec.org/n?u=RePEc:sca:scaewp:0504&r=all 1007. Bilateral “WTO-Plus” Free Trade Agreements: The WTO Trade Policy Review of Singapore 2004 S.M. Thangavelu (Department of Economics, National University of Singapore) Toh Mun Heng (Department of Business Policy, National University of Singapore) The World Trade Organisation’s 2004 Trade Policy Review of Singapore (WTO-TPR Singapore 2004) depicts the small and outward- oriented economy as one of the most open country to international trade and investment. The review highlights the benefits of the outward-oriented strategy that has enabled the Singapore economy to weather recent external shocks such as the Asian financial crisis to the SARS and to the recent unfavourable conditions in the Middle East. In particular, the report commended Singapore’s efforts on its liberalization of the services sector and its economic benefits to consumers and global trade. However, the WTO-TPR Singapore 2004 highlights several key areas of concerns: (a) the commitment to multilateral agreements with the rising number of bilateral free trade agreements signed by Singapore and (b) the lack of growth of total factor productivity, a key indicator for long-run efficiency of the economy. The paper addresses the above key concerns raised in the WTO’s TPR of Singapore in terms of its commitment to global trade in terms of WTO-plus bilateral FTAs, which intends to support multilateral trading system, and its overall industrial strategies to raise its competitiveness. URL: http://d.repec.org/n?u=RePEc:sca:scaewp:0505&r=all